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legalgems
legalgems, Arbitrator
Category: Real Estate Law
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Can I sell my income property at a loss to my step daughter,

Customer Question

can I sell my income property at a loss to my step daughter, then write off the loss?
Submitted: 10 months ago.
Category: Real Estate Law
Expert:  legalgems replied 10 months ago.

Per 267f of the IRC losses between related persons cannot be written off- however, the statute has a narrow definition of relation:

(4)

The family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; that is here:

Nondeductible Loss

A loss on the sale or exchange of property between related persons is not deductible. This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. For the list of related persons, see Related persons next.

If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. The gain on each item is taxable. The loss on any item is nondeductible. Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items.

Related persons. The following is a list of related persons.

  1. Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.).

  2. An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation.

  3. Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code.

  4. A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation.

  5. A grantor and fiduciary, and the fiduciary and beneficiary, of any trust.

  6. Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts.

  7. A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family.

  8. A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership.

  9. Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation.

  10. Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation.

  11. An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest.

  12. Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships.

  13. A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership.

Partnership interests. The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above.

Controlled groups. Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. https://www.irs.gov/publications/p544/ch02.html

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Information provided is for educational purposes only. Consultation with a personal attorney is always recommended so your particular facts may be considered. Thank you and take care.

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