Question

Heather sells land (adjusted basis $75,000; fair market value, $95,000) to a partnership in which she controls an 80% capital interest. The partnership pays her only $50,000 for the land. Question Content Area a. Heather has a $fill in the blank 95954dff601706e_1 realized loss, which she recognize. Question Content Area b. The partnership later sells the land to a third party for $80,000. The partnership has a realized gain of $fill in the blank da9d8df44fedfb1_1 and a recognized gain of $fill in the blank da9d8df44fedfb1_2 on its sale of the land.

Answer 1

Heather realizes a $25,000 loss, $5,000 gain recognized by P/S and $30,000 realized gain by P/S

What are the transaction summary?

As a sale that equals a related transaction, this is because Heather owns more than 50% of P/S whereas she can't recognize a loss if she sells to herself and she must recognize a gain as ordinary income.

We need to ignore 95,000 FMV because she is selling land in a related transaction rather than contributing it to P/S.

Hence, Heather realizes a $25,000 loss (75,000-50,000)  which is deferred because cannot recognize a loss only if sells it later and $5,000 gain recognized by P/S, $30,000 realized gain by P/S (Heather can offset her $25,000 deferred loss).

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