Related Party Sale

[Corduroy Frog]

20 years ago Paul purchased Land for $100,000. In 2021, he sold land to his brother for $150,000. However, the FMV appraised at $190,000.

If it has any bearing on the transaction, Paul has NOT made a gift to his brother in 2021 of $15,000 or any other amount. Neither Paul nor his brother are married.

Question:

1. How much long-term capital gain must Paul report from this transaction?
2. What is the basis in the land for his brother after the transaction?

[Lee B]

Good Summary article:  https://ruraltax.org/files-ou/Related_Parties.pdf

[jklcpa]

It's a bargain sale to related party and is part cap gain sale and part gift. The cap gain portion is $50K (selling price minus basis), and the gift is $40K (FMV minus selling price).

For basis in the hands of the transferee, please see sec 1.1015-4.  The link also has helpful examples:   https://www.law.cornell.edu/cfr/text/26/1.1015-4

 

Disclaimer - answers applies only to this scenario and would differ depending on the seller/transferor's type of entity, the type of property being sold, depreciated or not, and whether sold at gain or loss.

[Corduroy Frog]

Great responses and articles.  Thank you very much.