Question

Jack is the CEO of Poland Corp. ("PC"). PC owns a house that it bought for $500,000 and now is worth $1,000,000. PC decides to sell that house to Jack for $250,000. PC's internal tax department is planning on recognizing the loss on its returns. True or false - PC can recognize the loss on its return? Please explain why.

Answer 1

Explanation: If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. You have a gain if the amount realized is more than your adjusted basis in the property. However, you do not have a loss if the amount realized is less than the adjusted basis of the property.

In the given case, amount realised on the asset ($250,000) is less than the adjusted basis of the property. Therefore, the loss cannot be claimed. in Income Tax Return.

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