Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value...
Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Assume all of Shamed’s sales are to a non-related party.
a) How much gain or loss does Nikeya recognize on the sale?
b) How much gain or loss does Shamed recognize if he later sells the land for $125,000?
c) What if Shamed later sells the land for $90,000?
d) What if Shamed later sells the land for $105,000?
Homework Answers
The loss from related party sales are not deductible. It is added to the basis of the buyer.
a) Loss = $0
b) Gain = $125,000 - $95,000 - $25,000 (realized loss for Nikeya)
= $5,000
c) Loss = $90,000 - $95,000 - $25,000
= $30,000
d) Loss = $105,000 - $95,000 - $25,000
= $15,000
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