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October 18, 2021
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October 18, 2021

Marilyn owns land that she acquired three years ago as

Marilyn owns land that she acquired three years ago as an investment for $250,000. Because the land has not appreciated in value as she anticipated, she sells it to her brother, Amos, for its fair market value of $180,000. Amos sells the land two years later for $240,000.

  1. Explain why Marilyn’s realized loss of $70,000 ($180,000 amount realized − $250,000 adjusted basis) is disallowed at the time of the sale to her brother.
  2. Explain why Amos records neither a recognized gain nor a recognized loss on his sale of the land.
  3. How does the related-party disallowance rule affect the total gain or loss recognized by the family unit?
  4. Which party wins and which party loses, in a Federal income tax sense?
  5. How could Marilyn have avoided the loss disallowance on her sale of the land?