For each of the following independent transactions, calculate the recognized gai

Question

For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer.

If an amount is zero, enter "0."

Seller's Recognized
Gain/Loss Buyer's Adjusted Basis a. Bonnie sells Parchment, Inc. stock (adjusted basis $17,000) to Phillip, her brother, for its fair market value of $12,000. $ $ b. Amos sells land (adjusted basis $85,000) to his nephew, Boyd, for its fair market value of $70,000. $ $ c. Susan sells a tax-exempt bond (adjusted basis $20,000) to her wholly owned corporation for its fair market value of $19,000. $ $ d. Ron sells a business truck (adjusted basis $20,000) that he uses in his sole proprietorship to his cousin, Agnes, for its fair market value of $18,500. $ $ e. Martha sells her partnership interest (adjusted basis $175,000) in Pearl Partnership to her adult daughter, Kim, for $220,000. $ $

Explanation / Answer

SOLUTION

1.

Bonnie and Phillip are related parties under section 267, Therefore, Bonnie’s realized loss of $5,000 is disallowed. Phillip’s adjusted basis for the stock is his cost of $12,000.

2.

Amos and Andy are not related parties under section 267, Therefore, Amos’s realized loss of $15,000 is recognized. Boyd’s adjusted basis for the land is his cost of $70,000.

3.

Susan and her wholly owned corporation are related parties under section 267 (i.e., she owns greater than 50% in value of the outstanding stock). Therefore, Susan’s realized loss of $1,000 is disallowed. The corporation’s adjusted basis for the bond is its cost of $19,000.

4.

Ron and Agnes are not related parties under section 267. Therefore, Ron’s realized loss of $1,500 is recognized. Agnes’s adjusted basis for the truck is her cost of $18,500 .

5.

Amount ($) Amount realized 12,000 Adjusted basis (17,000) Realized loss (5,000) Recognized loss 0

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