CPA Study Group
Why is it a loss to Hannah if she has purchased vs. been gifted the stock. I am interpreting the answer that she 1st has a loss which she can use to offset the gain from the sale but I am not following the loss part?
Hanna did purchase the stock. Julia cannot claim a loss on a related party sale. Hanna has a gain of $2,000, but it is not recognized because it is not more than the loss previously disallowed.
If this were a gift Hanna would recognize the $2,000 gain when sold.
It is a loss because 1.) Hannah and Julia are related parties(eg: sisters). (2.) With related parties rules, Julia’s loss when she sold the stock to Hannah is disallowed/deferred until.. (3.) Hannah eventually sells the stock. Even though Hannah sold to an UNrelated party for a $2,000 “gain” because there is already a deferred $3000 loss “in the family” she can use thst loss to reduce her $2000 gain down to $0.