When a loss is disallowed under the related party loss rules,the loss:
A)Is carried forward indefinitely.
B)Reduces the subsequent gain when the related party sells the asset.
C)Is lost forever even if the related party sells the asset at a gain.
D)None of these.

Question

Quizplus · Accepted Answer

The loss is not allowed at the time of the transaction between the related parties, but it reduces the subsequent gain when the related party sells the asset to an unrelated party. This ensures that the loss is effectively deferred rather than being completely disallowed.

When a Loss Is Disallowed Under the Related Party Loss