Question

Lisa sells business property with an adjusted basis of $130,000 to her son, Alfred, for the fair market value of $100,000.

Answer 1

Answer:

a. The realized loss of Liza’s is $30000 (it is not recognized loss).

b.1    Alfred recognized gain is $8000 and realized gain is $38000.

b.2    Alfred recognizes loss of $20000.

Explanation:

a. Explanation

The sell of business property to his son at $100000 which has the market value $130000. Since Lisa incurring a loss of $30000 is considered as a realized loss. This loss can not be considered as the recognized loss because section 267 explains that sell or exchange of property between related parties is not considered as recognized.

b.1 Explanation

the recognized gain can be determined by subtracting the previously disallowed loss of $30000 from $38000 gain. However, the realized gain ($38000) can be determined by subtracting $100000 from $138000.  

b.2 Explanation

The recognized loss of $20000 can be calculated by subtracting the $100000 from $ 80000.