Note: Special rules apply to sales to a related party and gifting of equity.
No loss deduction is allowed to a taxpayer when the transactions involve a related party or a gift of equity. This requires some math when entering the sale of business or rental property.
When entering either of these transactions into the Sales of Business Property section, you’ll have to make manual adjustments to the basis to prevent the loss from showing. Keep these figures on hand as back-up for this adjustment.
Where to enter your Sale of Business Property:
- Under the Federal menu, select Wages & Income
- Scroll down to Other Business Situations and select Start/Revisit next to Sale of Business Property
- On the Any Other Property Sales? screen, select the appropriate boxes and then Continue
- On the Sales of Business or Rental Property screen, select No
- On the Sales of Other Business Property screen, select Yes
- Select the type of sale that describes your property and Continue
- Fill out the required info and continue through the next screens
Example: You purchased the property for $250,000. The fair market value (FMV) is now $300,000. You sold it to a related party or gifted equity with a sales price of $200,000. The program as it stands would show the loss. You must decrease the basis to equal the sales price in order to not show the loss. The new owner's basis is still $200,000, regardless of how you entered your sale in the program.