On January 15 of the current taxable year, Merle sold stock with a cost of $40,000 to his brother Ned for $25,000, its fair market value. On June 21, Ned sold the stock to a friend for $26,000.
a. Merle realizes a loss of $15,000 [i.e., $25,000 (amount realized) - $40,000 (adjusted basis)], which is disallowed because the stock was sold to a related party. Ned realizes a gain of $1,000 [i.e., $26,000 (amount realized) - $25,000 (adjusted basis)] on the sale to a friend but does not recognize any gain. Ned's
a. What are the tax consequences to Merle and Ned?
b. Would Ned recognize any gain if he sold the stock for $41,000?

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The Answer of On January 15 of the current taxable year, Merle sold stock with a cost of $40,000 to his brother Ned for $25,000, its fair market value. On June 21, Ned sold the stock to a friend for $26,000.
a. Merle realizes a loss of $15,000 [i.e., $25,000 (amount realized) - $40,000 (adjusted basis)], which is disallowed because the stock was sold to a related party. Ned realizes a gain of $1,000 [i.e., $26,000 (amount realized) - $25,000 (adjusted basis)] on the sale to a friend but does not recognize any gain. Ned's
a. What are the tax consequences to Merle and Ned?
b. Would Ned recognize any gain if he sold the stock for $41,000?

On January 15 of the Current Taxable Year, Merle Sold