Question

42. Nikeya sells land (adjusted basis of $ 120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct? a. Nikeya's recognized loss is $25,000 ($95,000 amount realized-$120,000 adjusted basis). b. Shamed's adjusted basis for the land is $120,000 ($95,000 cost+ $25,000 disallowed loss for Nikeya). c. If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss d. Only a. and b. are correct. e. Choices a., b., and c. are correct

Answer 1

please find below the solution... let me know if you need any clarification..

correct answer is option: C) If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss.


Exp
realized loss of $25,000 ($95,000 amount realized - $120,000 adjusted basis) is disallowed because Shamed is a related party.

Adjusted basis for the land = $95,000.

When land is sold for 112000  realized gain will be of  $17,000 ($112,000 amount realized - $95,000 adjusted basis) which is not recognized because the same can be offset by $17,000 of Nikeya's $25,000 disallowed loss in calculating his taxable income.