I'm exploring an option for unwinding a real-estate investment with my father. Please assume that we're both amicable towards any viable solution.

My father is currently the sole owner of this house due to probate action this year, which provides a value basis. It was initially in my mother's name as an asset before they were married and title was never changed.

For the sake of simplicity, let's assume that the property was purchased for $250k (in 2005) and is now worth $150k (per probate).

If the property is sold at a non-arms-length transaction to me for the current fair value, the actual capital loss would be $100k... But would the IRS agree since the valuation at the probate action was $150k and since it was purchased by my mother prior?