Travis and his three sisters are equal partners in the Heron Partnership.In 2012,Travis sells property (basis of $300,000)to Heron for its fair market value of $280,000.In 2014,Heron sells the property to a third party for
$290,000.Which of the following statements correctly describes these transactions?

Question

Quizplus · Accepted Answer

Travis owns 100% of Heron (25% directly and 75% indirectly through his sisters).Since Travis and Heron are related parties,his realized loss of $20,000 [$300,000 (basis)- $280,000 (selling price)] cannot be recognized.However,Heron can use the disallowed loss to offset any gain it has.Thus,Heron's realized gain of $10,000 [$290,000 (selling price)- $280,000 (basis)] is offset by the disallowed loss.

Travis and His Three Sisters Are Equal Partners in the Heron