Client who sold her rental property to her son. How do I report the sale of a rental property to a related party so that the loss doesn't get reported on the tax return

[itonewbie]

Use the Capital Gain (Loss) Transaction Worksheet to enter the transaction details.  Within that worksheet, you will find a checkbox for Sold to related party on Line 6b.

[chiodoinc]

Do I have to report it on Schedule E (disposition date) and then on Schedule D  box 6b?

[itonewbie · Accepted solution]

I totally missed the part this is a rental property.

Yes, you will report the rental income and expenses as usual up to the date of sale.

The sale will be reported on F.4797.  Since it is a loss, it will be reported in Part I of F.4797 but disallowed under §267.  That loss won't flow to anywhere else on the return.

This means you can't use the Capital Gain (Loss) Transaction Worksheet.  Rather you should enter the disposition details on an Asset Entry Worksheet under Sch E.  Problem is, I don't see any option on that worksheet for related party transaction or otherwise to disallow the loss.  It looks like the only way to disallow this loss is to override Box 2(g) on F.4797 itself, which is not ideal.

Hopefully, someone more familiar with PS will come along and give you pointers on the input.

[chiodoinc]

Thank you so much for your feedback and advice.  I appreciate your patience and knowledge.  You have been a huge help and nicer than some of the other participants in this community chat so I appreciate it.  Take care and stay healthy.

[itonewbie]

NP, @chiodoinc.  Glad you found it helpful.

Other contributors are just as helpful.  Sometimes, we just try to inject a bit humor into this otherwise dry forum but understand it may not always be received the way it's intended.  But we all have our days. 😅

Stay safe and healthy yourself too!