Discussion:Sale of Rental Property to related party
From TaxAlmanac
Revision as of 16:32, 7 November 2009
Discussion Forum Index --> Tax Questions --> Sale of Rental Property to related party
| 6 November 2009 | |
| My client is planning to sell his rental property to his brother at the Fair Market Value. The sale of rental property will result in a gain of 45K, however he has carryover passive activity loss from prior years for 40K. Does anyone know the characteristic of the gain? Is it a passive income or ordinary income? Can I offset the gain with the carryover passive activity loss? Please keep in mind it's a related party transaction. Any suggestions? | |
| 7 November 2009 | |
| I wouldn't think the passive losses would be allowable until the brother disposed of the property to an unrelated party. Otherwise, you could just transfer property within a family to free up passive losses. I don't have a cite for this, just a gut feeling based on other related party situations. | |
| 7 November 2009 | |
| From the Passive Activity Audit Technique Guide (so easily found on the IRS website if a tax professional were to look)
Unrelated Party If a passive activity is sold to a related party, losses are not triggered (except to the extent passive income is generated). They remain with the taxpayer and are shown on Form 8582 until the activity is ultimately acquired by an unrelated third party. See IRC § 469(g)(1)(B). Aside from IRC § 469(g), IRC § 267 generally does not permit a loss on the sale of property to a related parties. The following are related parties[4]: Members of a family; An individual and a corporation in which he owns directly or indirectly more than 50 percent in value of the outstanding stock; Two corporations which are members of the same controlled group; A grantor and trustee of any trust; A trustee and a beneficiary of the trust; A corporation and a partnership if the same persons own more than 50 percent in value of the outstanding stock of the corporation and more than 50 percent of the capital interest or profits interest in the partnership; An S Corporation and another S Corporation if the same persons own more than 50 percent in value of the outstanding stock of each corporation; or, An S Corporation and C Corporation if the same person owns more than 50 percent in value of the outstanding stock in each corporation. | |
