R3-M4 Related Party Transactions

Question 1

what is treatment of capital loss in related party transaction?

Answer 1

• a partner owns more than 50% in the partnership, so the partner and the partnership are related parties
• deduction of loss is DISALLOWED
• If a father sells stocks to his son, and later his son sells the stocks to a unrelated party, the son can use the disallowed loss between him and his brother to reduce any gain realized from the sale with an unrelated party

Question 2

what is holding period of related parties?

Answer 2

starts with the new owner’s period of ownership

Question 3

what is basis rule of related party transactions?

Answer 3

same as gift tax rules

Question 4

what are considered related parties?

Answer 4

• family members, including relative, but excluded in-laws
• more than 50% of ownership in a partnership or a corporation