Question 1

A taxpayer sells property to their adult child for $40,000. The property had an adjusted basis of $60,000. Two years later, the child sells the property to an unrelated party for $70,000. What is the child's recognized gain on the second sale?

Accepted Answer

1. Parent's loss ($20k) is disallowed under §267. 2. Child's basis is cost ($40k). 3. Child's gain ($30k) is reduced by Parent's disallowed loss ($20k).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Adding the disallowed loss to the child's basis immediately (incorrect); forgetting to use the loss to offset gain.

A taxpayer sells property to their adult child for $40,000. The property had an adjusted basis of $60,000. Two years later, the child sells the property to an unrelated party for $70,000. What is the child's recognized gain on the second sale?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 5

More questions from this exam