Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000 . Which of the following statements is correct?
a. Nikeya's recognized loss is $25,000 ($95,000 amount realized – $120,000 adjusted basis).
b. Shamed's adjusted basis for the land is $120,000 ($95,000 cost + $25,000 disallowed loss for Nikeya).
c. If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss.
d. Only a. and b. are correct.
e. a., b., and c. are correct.
c
RATIONALE: Nikeya's realized loss of $25,000 ($95,000 amount realized – $120,000 adjusted basis) is disallowed because Shamed is a related party. Shamed's adjusted basis for the land is his cost of $95,000 . However, when he sells the land for $112,000, his realized gain of $17,000 ($112,000 amount realized – $95,000 adjusted basis) is not recognized because he can offset it against $17,000 of Nikeya's $25,000 disallowed loss in calculating his taxable income.
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