An asset is sold to a related party at a loss of $10,000. The related party then sells the asset to an unrelated person at a loss of $15,000. How much loss is recognized on the sub... An asset is sold to a related party at a loss of $10,000. The related party then sells the asset to an unrelated person at a loss of $15,000. How much loss is recognized on the subsequent sale to the unrelated person?
Understand the Problem
The question describes a scenario involving the sale of an asset between related parties and then to an unrelated party. It's asking how much loss can be recognized on the sale to the unrelated party, considering the initial loss on the sale to the related party. The key here is to understand the accounting treatment for transactions between related parties.
Answer
$15,000
The recognized loss on the subsequent sale to the unrelated person is $15,000.
Answer for screen readers
The recognized loss on the subsequent sale to the unrelated person is $15,000.
More Information
In transactions involving related parties, losses are typically disallowed. However, when the related party sells to an unrelated party, the loss in this transaction is recognized.
Tips
A common mistake is to assume the loss incurred in the initial related-party transaction is recognized. In reality, such losses are generally disallowed.
Sources
- Dealing with sales between related persons - The Tax Adviser - thetaxadviser.com
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