Question

What is the easiest way for a taxpayer who is going to sell property that has declined in value to avoid the § 267 loss disallowance provision?

A) Sell the property to a non-related party.
B) Gift the property to a family member.
C) Ensure that the property is sold at a gain.
D) Have the related party purchase additional property from the taxpayer.

Answer 1

The easiest way to avoid the § 267 loss disallowance is by selling the depreciated property to a non-related party, as the provision only applies to transactions between related parties.

Step-by-step explanation:

The easiest way for a taxpayer to avoid the § 267 loss disallowance provision when selling property that has declined in value is by selling the property to a non-related party.

The § 267 loss disallowance provision is designed to prevent taxpayers from claiming tax deductions for losses on sales or exchanges of property between related parties. If a taxpayer sells the property to a non-related party, there is no need to worry about this provision because the rule only applies to transactions between related parties, not to those involving unrelated parties. Hence, selling to an unrelated party removes the property transaction from the scope of § 267 and the taxpayer can then potentially claim the loss.

Options such as gifting the property, ensuring a sale at a gain, or having a related party purchase additional property do not directly address the issue of loss disallowance under § 267.