Gain or Loss: Sales to Related Party
) Big Betty owned stock costing $12,000 which she sold to her daughter, Bertha, for
$8,000. Bertha sold the stock later for $14,000.
a. What is Big Betty’s gain or loss?
b. What is Bertha’s gain or loss?
c. If Bertha had sold the stock for $10,000, how much gain or loss would she recognize?
d. If Bertha had sold the stock for $6,000, how much gain or loss would she recognize?.
a. There is a realized loss of $4,000 ($8,000 - $12,000), but it is disallowed because it is a
sale to a related party. IRC 267(a)
b. $2,000 gain. The $6,000 gain is reduced by the $4,000 disallowed loss. IRC 267(d)
c. None. The $2,000 realized gain is eliminated by a portion Big Betty’s disallowed loss.
The rest of Big Betty’s disallowed loss is gone forever.
d. $2,000 loss. Assume this is business or investment property. Big Betty’s loss cannot
ever be used again.
) Mrs. Duck owned stock with a basis of $50,000 which she sold to her sister, Daffy, for
$42,000. Three months later, Daffy sold the stock through a broker for $52,000. What is the
gain or loss to Mrs. Duck? What is the gain or loss to Daffy?
The loss of $8,000 is disallowed for Mrs. Duck because the transaction is between related
parties. IRC 267(a) The $10,000 realized gain to Daffy is reduced by the $8,000 disallowed
loss to Emily, resulting in a recognized gain of $2,000. IRC 267(d).