Property-disposition complications covering related-party loss limits, wash sales, abandonments, and multistate sourcing issues.
This chapter covers the rules that complicate an otherwise straightforward disposition answer. Related-party attribution, wash-sale timing, worthlessness, abandonment, and state sourcing can all override the normal gain-or-loss framework if the fact pattern includes the wrong relationship, security, or jurisdiction.
Complex property questions should be checked for override rules after gain or loss is computed. A correct realized-loss number may still be disallowed, deferred, recharacterized, or sourced differently because of the relationship, replacement purchase, property type, or jurisdiction.
| Complication | First question | Common TCP trap |
|---|---|---|
| Related-party losses | Are attribution or control rules creating related-party treatment? | Deducting a loss that is disallowed or deferred. |
| Wash sales and worthless securities | Did the taxpayer replace substantially identical securities or have a timing-specific worthlessness event? | Treating every stock loss as currently deductible. |
| Abandonments and partial dispositions | Was property abandoned, partially disposed of, or retired with a basis allocation issue? | Applying normal sale logic when no sale occurred. |
| Multi-jurisdictional sourcing | Which state or local jurisdiction can tax or source the disposition? | Solving only the federal character and ignoring state sourcing. |
| Step | What to do | Why it matters on TCP |
|---|---|---|
| 1. Compute the normal result | Determine realized gain or loss, adjusted basis, amount realized, and character before applying special rules. | Override rules modify a baseline result; they do not replace the need to compute it. |
| 2. Check related-party status | Apply attribution, control, family, entity, and constructive ownership rules. | Related-party treatment can disallow losses or defer gain recognition. |
| 3. Test security-specific rules | Look for wash sales, substantially identical replacement securities, worthlessness, and timing facts. | Securities losses often fail because of replacement purchases or special timing rules. |
| 4. Evaluate non-sale dispositions | Consider abandonment, retirement, partial disposition, casualty-like facts, and basis allocation. | Not every disposition uses ordinary sale logic. |
| 5. Add jurisdictional sourcing | Identify whether state or local sourcing changes the final tax result or reporting obligation. | Complex property cases often require both federal character and jurisdictional analysis. |
| Checkpoint | Exam use | What to avoid |
|---|---|---|
| Baseline result | Compute amount realized, adjusted basis, realized gain or loss, and character before override rules. | Jumping to a special rule without knowing the normal result being modified. |
| Relationship test | Apply family, entity, control, constructive ownership, and attribution facts. | Missing related-party treatment because the parties are not directly named as relatives. |
| Replacement purchase | Check wash-sale timing, substantially identical securities, account ownership, and basis adjustment. | Deducting a securities loss when replacement facts defer it. |
| Non-sale event | Identify abandonment, worthlessness, retirement, partial disposition, casualty, or other non-sale disposition. | Applying sale proceeds logic when no sale occurred. |
| State sourcing | Add jurisdiction, property location, residency, withholding, and reporting obligations when facts cross states. | Treating the federal character answer as the complete tax result. |