Nikeya sells land to her adult son Shamed at a loss. What is Nikeya's recognized loss?

When an individual sells property to a related party, such as a family member, the Internal Revenue Code has specific rules regarding the recognition of losses. In this scenario, when Nikeya sells land to her adult son Shamed at a loss, the loss is not recognized for tax purposes due to the related-party transaction provision.

The rationale behind this provision is to prevent taxpayers from obtaining a tax benefit from transactions that do not reflect a real economic loss, given the close relationship between the parties. Therefore, while Nikeya may incur a financial loss from the sale, the IRS does not allow her to recognize this loss on her tax return.

Consequently, the correct answer is that Nikeya's recognized loss is not applicable in this situation, as no loss recognition occurs when selling property to a related party. As such, acknowledging this regulatory framework is essential for understanding how losses in related-party transactions are treated for tax purposes.