Chapter 14, Problem 14DQ

LO.4 Marilyn owns land that she acquired three years ago as an investment for $250,000. Because the land has not appreciated in value as she anticipated, she sells it to her brother, Amos, for its fair market value of $180,000. Amos sells the land two years later for $240,000.

1. a. Explain why Marilyn’s realized loss of $70,000 ($180,000 amount realized – $250,000 adjusted basis) is disallowed at the time of the sale to her brother.
2. b. Explain why Amos records neither a recognized gain nor a recognized loss on his sale of the land.
3. c. How does the related-party disallowance rule affect the total gain or loss recognized by the family unit?
4. d. Which party wins and which party loses, in a tax sense?
5. e. How could Marilyn have avoided the loss disallowance on her sale of the land?