On January 4, 2017, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under § 351. The shareholder's basis, the fair market value, and the built-in gain (loss) of each property are:

Martin adopts a plan of liquidation later in the year and distributes Property 2 to a 30% shareholder when the property is worth $350,000.
a. Compute Martin's basis in Property 1 and in Property 2 as of January 4, 2017.
b. Compute Martin's realized and recognized loss on the liquidating distribution of Property 2.

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Shareholder's Basis Built-In Gain (Loss) Fair Market Value Property 1 Property 2 Net built-in loss $ 75,000 (125,000) $300,000 $375,000 400,000 525,000 ($ 50,000)