Question

On January 1, 2018, Myron sells stock that has a $66,900 FMV on the date of the sale (basis $97,900) to his son Vernon. On October 21, 2018, Vemon sells the stock to an unrelated party. In each of the following, determine the tax consequences of these transactions to Myron and Veron: a. Vernon sells the stock for $47.000, b. Vernon sells the stock for $106,200. c. Vernon sells the stock for $86,500. (For all requirements, If no gain or loss is recognized, select "No gain/loss".) Gain/Loss Myron Veron Realized Recognized b. Realized Recognized c. Realized Recognized

Answer 1

Gain/Loss a) Realized Recognized b) Realized Recognized c) Realized Recognized Myron Vernon -$31,000-$19,900 $0 -$19,900 $31,000 $39,300 $0 $8,300 $31,000 $19,600 $0 $0

In all the cases as Vernon is Myron's son, it is a related party transaction .As a result of this, the loss realized by Myron would be disallowed in the hands of Myron to be recognized as a loss.Thus, for Myron for all the three situations:

Realized loss: -$31,000 ($66,900-$97,900)

Recognized loss: $0

As Vernon has sold the stock to an unrelated party, the realized gain or loss would be equal to the difference that exists between FMV of the stock and the sale of each of the transaction.However, the gain would be realized after absorbing the Myron's realized loss of $31,000, in case gain arises.In case loss arises then he entire loss would be recognized by Vernon and in case gain arises Myron's realized loss would be reduced from the gain realized to compute the recognized gain on the transactions.Thus,

a)Realized loss -$19,900 ($47,000-$66,900)

Recognized loss -$19,900 ($47,000-$66,900)

b)Realized gain $39,300 ($106,200-$66,900)

Recognized gain $8,300 ($39,300-$31,000)

c) Realized gain $19,600 ($86,500-$66,900)

Recognized loss $0 (as realized gain is less than Myron's realized loss)