ExpertMedium1 markMultiple Choice
CPA · Question 65 · Area IV: Property Transactions
A taxpayer sells stock (Basis $50,000) to their sister for $30,000 (FMV). The sister later sells the stock to an unrelated party for $55,000. What is the sister's recognized gain?
A taxpayer sells stock (Basis $50,000) to their sister for $30,000 (FMV). The sister later sells the stock to an unrelated party for $55,000. What is the sister's recognized gain?
Answer options:
A.
$25,000
B.
$20,000
C.
$5,000
D.
$0
How to approach this question
1. Original Sale: Loss of $20k ($30k - $50k) is disallowed (Related Party §267). 2. Sister's Sale: Realized Gain = $55k - $30k = $25k. 3. Use Disallowed Loss: Gain is reduced by the previously disallowed loss ($20k). Recognized Gain = $25k - $20k = $5,000.
Full Answer
C.$5,000✓ Correct
IRC §267(d). The sister's realized gain ($55,000 - $30,000 = $25,000) is reduced by the brother's previously disallowed loss ($20,000). Recognized gain = $5,000.
Common mistakes
Forgetting to use the disallowed loss to offset the gain.
Practice the full CPA TCP Practice Exam 3
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive is granted 1,000 Incentive Stock Options (ISOs) with an exercise price of...MediumQ02On January 1, Year 1, a corporation lends $500,000 to a shareholder interest-free. The loan is a ...MediumQ03A taxpayer has regular taxable income of $200,000 in Year 1. They claimed a standard deduction of...MediumQ04A U.S. citizen accepts a permanent assignment in France on January 1, Year 1. They are present in...MediumQ05A 12-year-old child has $5,000 of interest income and no earned income in Year 1. Assume the stan...Hard