@Mike9241 wrote:
....does A report $175 less $151 or $151 less $151 or $125 less $151 with the loss not allowed because of IRC 267(c)(4) or $125 less.......
I believe A would report the amount realized (sales price) of $125 (which is what A actually received) against a basis of $151 for a loss of $26 (which cannot be recognized per Section 267).
Then, when the property is later sold (by the son in this case), Section 267(d)(1) would be applicable; any gain realized by the son on that sale would be reduced by the previously disallowed loss.
A would file a gift tax return for the $50 gift (difference between FMV and amount received).
Sidebar (my opinion): The foregoing is a really lousy way to structure this transaction.
