I recently was reading some deeds and in one case I noticed that a vacant lot had been transferred for a lot more than its value. On the open market the lot would sell for maybe $300,000 at best. However, according to the conveyance it was "sold" for $1,000,000 to someone else in the same family.
The tax advantages of doing this are obvious: if the "buyer" later develops the lot, they can deduct the million against their building costs as a capital expense. Or, if they sell the land for real later, say for $250,000 then they can declare a capital loss of $750,000.
Is the IRS wise to schemes like this, or is this kind of thing a standard practice?