As a tax practitioner, you often get people asking questions concerning the tax

Question

As a tax practitioner, you often get people asking questions concerning the tax effect of property transactions. This year is no exception. You've had individual clients ask you the following questions:

I. During the course of the year, I swapped some property for what I consider to be similar property. Is this a taxable event? If so, how do I calculate my gain, if any, and my basis in the property that I received?

II. I own part of a C corporation. During the year, the corporation sold me some property at a loss. What are the tax consequences of this transaction to me and the corporation? Answer each of these questions, explaining the rules that apply to each property transaction and the possible tax consequences of each.

Explanation / Answer

Question – 1

It is Taxable,

If property held by qualified intermediary , if the property exchanged was not simultaneous.

The basis for calculating gain on this transaction is equal basis of the property you exchanged

And your holding period taxes on the new asset.

Question -2

Here Seller and Buyer are relatives because corporation sold property to their owner

If any loss getting out of sold of a property to the related parties

Then that loss is disallowed under IRC Section 267. And Corporation has no gain or loss on this transaction and your basis is what you actually paid.

As per section 276 (d) if you subsequently sell the asset , if you get any gain from that sale then you can reduce the corporation loss from this gain , however if you sell the property at a loss by subsequently then you cannot increase the corporation loss or if the gain is less than the loss you can only bring the gain to zero.

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