Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair market value. She had paid $26,000 for the stock. Calculate Sandra’s and Bob’s gain or loss under the following circumstances:
a.
?
Sandra sold the shares to Bob for $20,000. One year later, Bob sold them for $18,000. b.
?
Sandra sold the shares to Bob for $30,000. One year later, Bob sold them for $27,000. c.Sandra sold the shares to Bob for $20,000. One year later, Bob sold them for $28,000.
What will be an ideal response?
| a.? | Sandra has no deductible loss. The $6,000 realized loss is disallowed as a related-party transaction. Bob’s recognized loss is $2,000.? |
| b.?? | Sandra has a recognized gain of $4,000. Bob has a recognized loss of $3,000. Related-party transaction rules apply only to losses.? |
| c.? | Sandra has no deductible loss. The $6,000 realized loss is disallowed as a related-party transaction. Bob has a recognized gain of $2,000 ($28,000 – $20,000 = $8,000 less Sandra’s disallowed loss of $6,000). |
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