Sheila sells stock, which has a basis of $12,000, to her daughter for $7,000, the stock's fair market value. Subsequently, the daughter sells the stock to an unrelated party for $5,000. Which of the following is true for Sheila and her daughter?
A)
B)
C)
D)
A)
The $5,000 ($7,000 - $12,000) loss on Sheila's sale to Daughter is disallowed under the related party transaction rules. Her daughter's subsequent sale at a $2,000 loss, however, is recognized. The disallowed loss incurred by Sheila can only be used to reduce her daughter's subsequent gain, not loss.
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Fill in the blank(s) with correct word
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