ExpertMedium1 markMultiple Choice
CPA · Question 72 · Area 5: Property Transactions
Father sells stock (Basis ,000) to Daughter for ,000 (FMV). Daughter later sells the stock to an unrelated party for ,000. What is Father's recognized loss and Daughter's recognized gain?
Father sells stock (Basis ,000) to Daughter for ,000 (FMV). Daughter later sells the stock to an unrelated party for ,000. What is Father's recognized loss and Daughter's recognized gain?
Answer options:
A.
Father: ,000 Loss; Daughter: ,000 Gain
B.
Father: 0 Loss; Daughter: ,000 Gain
C.
Father: 0 Loss; Daughter: 0 Gain
D.
Father: 0 Loss; Daughter: ,000 Gain
How to approach this question
Related Party Sale: 1. Seller's loss is disallowed. 2. Buyer takes cost basis. 3. When Buyer sells, they can reduce their gain (but not below zero) by the previously disallowed loss.
Full Answer
C.Father: 0 Loss; Daughter: 0 Gain✓ Correct
Father's ,000 loss is disallowed under §267. Daughter's basis is cost (,000). Daughter sells for ,000, realizing a ,000 gain. She can offset this gain with Father's disallowed loss (up to the amount of gain). ,000 gain - ,000 utilized loss = 0 recognized gain.
Common mistakes
Allowing the father's loss or forgetting the daughter can use it later.
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