Other Non-Recognition Transactions

Question 1

Describe wash sales.

Answer 1

• Sale where substantially identical stock or securities repurchased within 30 day window around sale
• Losses won’t be recognized but taxpayer takes an AB in new securities equal to cost plus deferred loss
• Holding period carries over as well

Question 2

Do we recognize related party losses?

Answer 2

No

Question 3

Define related parties.

Answer 3

Family members (brother, sister, spouse, ancestors, descendants) and controlled entities where TP owns more than 50% of stock or partnership's capital
-Doesn't include in-laws nor aunts and uncles

Question 4

Describe “right of offset”.

Answer 4

• Occur in related party transactions where deferred loss can be used to reduce gain upon ultimate sale to an unrelated taxpayer
• Cannot create a loss nor make a loss greater

Question 5

When does holding period begin for a related party purchase?

Answer 5

-Date of purchase from related party

Question 6

What are the requirements for the $250,000 ($500,000 if MFJ) exclusion on sale of principal residence?

Answer 6

• Ownership test: At least one spouse must have owned for at least 2 of 5 preceding years
• Use test: Both spouses must for at least 2 of 5 preceding years
• Exclusion can only be used once every two years

Question 7

Who cannot use the installment method?

Answer 7

-Dealers for sales of inventory