1. On May 23, 2017, Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair
market value, $30,000. She had paid $26,000 for the
... [Show More] stock. One year later, on May 30, 2018, Bob
sold the same 500 shares for $27,000. Which of the following statements is most accurate?
a. Sandra has realized gain of $4,000 in 2017, which is recognized in 2018 when Bob sell the
share at a price greater than or equal to the value he bought from Sandra.
b. Sandra has a recognized gain of $4,000 in 2017. Bob has a recognized loss of
$3,000 in 2018.
c. Sandra has no deductible loss. Bob has a recognized gain of $2,000.
d. None of the above.
Answer (b) . Sandra’s sale results in a gain (AR: 30,000 less AB 26,000) of 4,000. The gain is
recognized and realized in 2017. A sale with a gain to a related party does not invoke any
special tax treatment. Bob’s basis is $30,000 the amount he paid, his sale (presumably to a
unrelated third party) will result in a recognized loss of $3,000.
2. Walter sells land with an adjusted basis of $175,000 (fair market value $160,000) to his mother,
Shirley, for its fair market value ($160,000). Walter invests the proceeds in the stock market.
Shirley holds the land for one year and a day and sells it to an unrelated third party for
$169,000. Determine the tax consequences to Walter & Shirley
a. Walter’s realized loss is disallowed because Walter and Shirley are related parties.
Shirley should use as much of Walter’s disallowed loss as she needs to reduce her
recognized gain to $0. The balance of the disallowed loss will be used to offset
against any ordinary income Walter has.
b. Walter’s realized loss is disallowed because Walter and Shirley are related parties. Shirley
should use as much of Walter’s disallowed loss as she needs to reduce her recognized gain to
$0. The balance of the disallowed loss will never benefit Shirley or Walter.
c. Walter’s realized loss is recognized. Although Shirley is related she paid the fair market
value of the property.
d. None of the above. [Show Less]