Question

Luke sells property with an adjusted basis of $38,000 to his son for $24,000. His son subsequently sells the property to his brother for $24,000. Two years later, the brother sells the property to Monica, an unrelated party, for $42,000. What is the brother's recognized gain or loss on the sale of the property?

A. Recognized Gain of $0

B. Recognized Gain of $14,000

C. Recognized Loss of $14,000

D. Recognized Loss of $18,000

Answer 1

The brother's recognized loss on the sale of the property is $14,000.

Step-by-step explanation:

The brother's recognized gain or loss on the sale of the property is a recognized loss of $14,000.

When Luke sells the property to his son for $24,000, he incurs a loss of $14,000 ($38,000 - $24,000). Since the son sells the property to his brother for the same price of $24,000, the brother's adjusted basis will still be $24,000. Therefore, when the brother sells the property to Monica for $42,000, he incurs a loss of $18,000 ($24,000 - $42,000).