Related Party sale – losses aren’t deductible. No problem there.
But what happens in a related property sale of rental real estate at an overall gain, if there is (1) a loss on the land, but (2) a gain on the building? Is the loss on the land still disallowed?
For example:
• Related party sale total net gain =$10,000. Reported on 4797 it is made up of:
• Gain on building = $20,000
• loss on land =$10,000
Does the taxpayer have to recognize a $20,000 gain on the transaction and loss on land is disallowed.
Or does the taxpayer recognize a $10,000 gain.
If this was not depreciable property (vacation home) there would only be “one total value” and there would be no disallowed loss .
It seems to me the property is only split to calculate depreciation, but does that create a situation where the loss is disallowed?