Question

Donald owns investment land with an adjusted basis of $39,900 and fair market value of $34,700. He sells the land to his rother, George, for $31,900. George then sells the land to an unrelated third party for $60,200. What is Donald's realized gain/loss and recognized gainloss?

Answer 1

Donald has a realized loss of $8,000 from selling the land at $31,900, which is less than the adjusted basis of $39,900. However, since the sale is between related parties, this loss is not recognized for tax purposes, resulting in a recognized loss of $0.

Step-by-step explanation:

When examining the sale of investment property between related parties, we need to consider realized gain or loss as well as recognized gain or loss. Donald's adjusted basis for the land is $39,900, and he sells it to his brother for $31,900. This sale results in a realized loss of $8,000. However, losses from sales between related parties are not recognized for tax purposes. Therefore, Donald's recognized loss is $0.

The subsequent sale by George to an unrelated third party for $60,200 does not affect Donald's recognized gain/loss, but it will affect George's tax implications.