! intermediary involving related persons,

CAUTION see Multiple-party transactions involv ing related persons in chapter 1 of Pub. 544.

Example. You own real property used in your business. Your sibling owns real property used in their business. In December 2024, you exchanged your property plus $15,000 for your sibling’s property. At that time, the FMV of your real property was $200,000 and its adjusted basis was $65,000. The FMV of your sibling’s real property was $215,000 and its adjusted basis was $70,000. You realized a gain of $135,000 (the $215,000 FMV of the real property received, minus the $15,000 you paid, minus your $65,000 adjusted basis in the property). Your sibling realized a gain of $145,000 (the $200,000 FMV of your real property, plus the $15,000 you paid, minus their $70,000 adjusted basis in the property).

However, because this was a like-kind exchange and you received no cash or non-like-kind property in the exchange, you recognize no gain on the exchange. Your basis in the real property you received is $80,000 (the $65,000 adjusted basis of the real property given up plus the $15,000 you paid). Your sibling recognizes gain only to the extent of the money they received, $15,000. The basis in the real property received was $70,000 (the $70,000 adjusted basis of the real property exchanged minus the $15,000 received, plus the $15,000 gain recognized).

In 2025, you sold the real property you received to a third party for $220,000. Because you sold property you acquired from a related

party (your sibling) within 2 years after the exchange with your sibling, that exchange is disqualified from nonrecognition treatment and the deferred gain must be recognized on your 2025 return. On your 2025 tax return, you must report your $135,000 gain on the 2024 exchange. You must also report the gain on the 2025 sale on your 2025 return. Additionally, for 2025, your sibling must report a gain of $130,000, which is the $145,000 gain on the 2024 exchange, minus the $15,000 recognized in 2024. Your sibling’s adjusted basis in the property is increased to $200,000 ($70,000 basis plus the $130,000 gain recognized).

Exceptions to the rules for related per- sons. The following property dispositions are excluded from these rules.

• Dispositions due to the death of either related person.

• Involuntary conversions.

• Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax.

Multiple property exchanges. Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following.

• Transfer and receive properties in two or more exchange groups.

• Transfer or receive more than one property within a single exchange group.

For more information, see Multiple Property Exchanges in chapter 1 of Pub. 544.

Deferred exchange. A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. The property you receive is replacement property. The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met.

For more information, see Deferred Ex- change in chapter 1 of Pub. 544.

Transfer to Spouse

Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. This rule does not apply in the following situations.

• Your spouse or former spouse is a nonresident alien (unless special elections have been made).

• Certain transfers in trust.

• Certain stock redemptions under a divorce or separation instrument or a valid written agreement.

For more information and special rules for transfers of property incident to divorce, see Property Settlements in Pub. 504, Divorced or Separated Individuals.

Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. The recipient’s basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. This rule applies for determining loss as well as gain. Any gain recognized on a transfer in trust increases the basis.