Maria owns a 60% interest in the KLM Partnership. Four years ago her father gave her a parcel of land. The gift basis of the land to Maria is $60,000. In the current year, Maria had still not figured out how to use the land for her own personal or business use? consequently, she sold the land to the partnership for $50,000. The partnership immediately started using the land as a parking lot for its employees. Maria may recognize her $10,000 loss on the sale.

Question

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According to the information given, Maria sold the land to the partnership for $50,000, which is less than her gift basis of $60,000. Therefore, she has a tax loss of $10,000. However, since she sold the land to a partnership in which she owns a 60% interest, the transaction may be considered a related party transaction. In this case, the loss may be disallowed or deferred under the related party rules of the tax code. Therefore, Maria may not be able to recognize her $10,000 loss on the sale.

Maria Owns a 60% Interest in the KLM Partnership