[vanessa000abc]

N bought stock for 20,000 that he sold to his brother R for 22,000. FMV of stock is 19,000. R later sells the stock for 21,000

How much gain or loss does R recognize?

Thanks

[momto5]

I am guessing $0 because “No gain or loss is recognized when the future sales price is between the two related parties' purchase prices.” Is that the correct answer?

FAR - 92 (4/27/12)
AUD - 96 (7/17/12)
BEC - 92 (8/30/12)
REG - 91 (11/12/12)

[kts1010]

I think maybe it should be $1000 gain recognized. I could be wrong but since basis is lesser than gifted price you use basis for when the stocks are sold. So that would be 21000-20000=1000. I could be wrong so I don't know but am curious if you have an actual answer to the question.

AUD - 08/20/12 - 82
REG - 10/30/12 - 82
FAR - 01/05/13 - 80
BEC - 04/15/13 - 84

[Minimorty]

[Minimorty]

Edited because I am pretty sure my last answer was wrong. There is a gain basis and a loss basis in scenarios like this. If R recognized a gain (let's say he sold it for $25,000) then he would use N's basis. But since he sold it for a loss of $1,000, he gets to use his actual basis. So I am pretty sure the answer is that R gets to recognize a $1,000 loss.

[Minimorty]

https://www.costbasis.com/stocks/relatedpartyrules.html

[Anonymous]

ANSWER: NO GAIN OR LOSS

General rule: Always use the cost basis of the giver (rollover basis) when determining gain/loss recognized

EXCEPTION: When FMV is LESS than the cost basis of the giver, then the adjusted basis depends on how much the property was sold for.

The exception exists in this problem.

Solution:

FMV = 19,000 and it is LOWER than his cost basis which is 20,000.

Becker teaches this method:

If the selling price falls between the COST BASIS of the giver and the COST BASIS of the Recceiver, then NO GAIN OR LOSS RECOGNIZED.

In this situation:

Cost basis of the giver (N): 20,000

Cost basis of the receiver (R): 22,000

Selling price to the third party: 21000

THe 21,000 falls between 20,000 and 22,000, so NO GAIN OR LOSS (LOSS IS NEVER RECOGNIZED on related party trx)

Remember, this exception only applied because The FMV is LESS than the cost basis of the giver.

[momto5]

That didn't cover the situation in the problem though. Because of the related parties, if the future sale is between the two previous sales prices, then no gain or loss is recognized. Page R1-67 if you have Becker 2012.

Technically he sold it for a gain from his brother's basis ($1000 gain) and a loss from his basis ($1000 loss), so I still think it is $0.

@vanessa000abc – can you let us know what answer your study materials gave for the question?

FAR - 92 (4/27/12)
AUD - 96 (7/17/12)
BEC - 92 (8/30/12)
REG - 91 (11/12/12)

[vanessa000abc]

I made up this question. I think it should be 10,000 loss. Since the related party is selling at a gain not at loss, so we should treat it as regular gain or loss. I am not sure.

[vanessa000abc]

if we treat it as regular transaction, what it is R basis. 22,000?

Sorry guys, to bring you into this confusion.

[Anonymous]

NO LOSS is ever recognized on related party transactions.

Quoting Becker here:

“WRaP” up thos losses!

Do not recognize loss on:

W – Wash sale losses

R – Related party transactions

a – and

P -Personal Losses

[Anonymous]

If they were not related then R's basis will be HIS cost basis if he paid 22,000.

[vanessa000abc]

thank you all for the inputs. I am taking the test tomorrow and I need luck. luck, luck. lol.

[Minimorty]

Anna – There are two transactions here. Your WRaP mnemonic applies only to the first one.

[Author]

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