25. Determine the amount of gain or loss realized and the amount of gain or
loss to be recognized in each of the following dispositions:
a. On October 1, Rufus Partnership sells land to Gerald for which it had paid
$32,000. Gerald agrees to pay Rufus $15,000 and to assume Rufus's
$13,000 mortgage on the land. In addition, Gerald agrees to pay the $1,000
in property taxes on the land for the entire year.
Rufus realizes and recognizes a loss of $3,250 on the sale to Gerald.
Gerald's amount realized consists of the $15,000 cash plus the $13,000
mortgage assumption plus the $750 [$1,000 x (9 ÷ 12)] of Rufus's
property taxes which are paid by Gerald. Rufus's $3,250 realized loss
is calculated as follows:
Amount realized ($15,000
Realized loss on sale
The realized loss of $3,250 is recognized by the partnership. The land
is either trade or business use (Section 1231) or investment property
b. Carrie sells stock to her brother Dolph for $4,000 that had cost her $9,000.
Several years later, Dolph sells the stock for $13,000.
Carrie has a realized loss of $5,000 ($4,000 - $9,000) that is
disallowed because it is a related party sale. Dolph's realized gain is
$9,000 ($13,000 - $4,000). However, Dolph is allowed to reduce his
realized gain by Carrie's disallowed loss, resulting in a recognized
gain of $4,000 ($9,000
c. Jill wants to refurnish her new home. As part of her refurnishing plan, she
sells all her old living room furniture for $1,800; it had cost her $4,200. She
uses the $1,800 as a down payment on new furniture costing $6,000.
Jill has a $2,400 realized loss ($1,800 - $4,200) on the sale of the
Because the furniture is a personal use asset, the legislative
grace concept does not allow Jill to recognize the loss.