Lee sells equipment (basis $10,000)to related party,Lee Construction Inc. ,for $6,000.The $4,000 loss is:
A)Deductible by Lee on his individual return.
B)Not deductible by Lee but Lee Construction has a basis of $10,000 in the asset.
C)Not deductible by Lee but Lee Construction has a basis of $6,000 in the asset.
D)None of these.

Question

Quizplus · Accepted Answer

Losses on sales or exchanges of property between related parties are not deductible. The basis of the property in the hands of the buyer, in this case, Lee Construction Inc., is the amount paid for the property, which is $6,000.

Lee Sells Equipment (Basis $10,000)to Related Party,Lee Construction Inc