Mom sold son investment lots at loss yet the Mom would have still had a loss based on fair market value at time of sale. The example is the Mom purchased lots 21 years ago @ $5000, sold to son for $1000 and FMV was $3000 at time of sale.
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ChEAr$,
Harlan Lunsford, EA n LA -
Seems like it would have been wiser for her to give him the lots. Nothing would prevent him from giving her $1,000 around the same time. End result is that he would have a cost basis of $3,000 in the lots and she would still have the $1,000."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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This is a related party sale
and the loss is not allowed...Comment
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I agree that the loss isn't allowed at all, even if sold at FMV, because of the related party rules.
But what's the son's basis? This was part sale, part gift. If we ignore the $1K payment, then the son's basis would be $5K for selling at a gain and $3K for selling at a loss. If sold for $4K, it's neither a gain nor a loss, and the mother's $1K loss isn't usable.
It doesn't seem right that the $1K payment should force the son's basis to be exactly $1K, because that ignores the gift component. But the only other interpretation I can come up with is to ignore the $1K and treat it entirely under the gift rules. Note that in Pub. 544, it says that the mother's loss would be applied if it's sold at a gain, which suggests to me that the basis for selling at a gain is still going to be $5K.Comment
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