Question

Oliver sells property with an adjusted basis of $26,000 to his son for $18,000. His son subsequently sells the property to his sister for $18,000. Two years later, the sister sells the property to Cedric, an unrelated party, for $28,000. What is Oliver's recognized gain or loss on the sale of the property?

A. Recognized Loss of $8,000

B. Recognized Gain of $2,000

C. No Recognized Gain or Loss

D. Recognized Loss of $10,000

Answer 1

Oliver's recognized gain or loss on the sale of the property is a recognized loss of $8,000. To calculate the recognized gain or loss, we need to consider the adjusted basis and selling price at each transaction. Since the adjusted basis is higher than the selling price in the first transaction, Oliver incurs a loss.

Step-by-step explanation:

Oliver's recognized gain or loss on the sale of the property is a recognized loss of $8,000.

To calculate the recognized gain or loss, we need to consider the adjusted basis and the selling price at each transaction.

1. Oliver sells the property to his son for $18,000. Since the adjusted basis is $26,000 and the selling price is lower, Oliver incurs a loss of $8,000 (adjusted basis - selling price = loss).
2. His son sells the property to his sister for $18,000. However, the selling price is the same as the adjusted basis of $18,000, so there is no gain or loss for his son.
3. The sister sells the property to Cedric for $28,000. In this transaction, the adjusted basis is still $18,000, and the selling price is higher, resulting in a recognized gain of $10,000 (selling price - adjusted basis = gain).

Since we are looking at the sale by Oliver, the recognized gain or loss is determined by the first transaction, which is a loss of $8,000.