Transfers to Spouse
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 if the recipient is a nonresident alien. Nor
does it apply to a transfer in trust to the extent the liabilities assumed and the
liabilities on the property are more than the property's adjusted basis.
Any transfer of property to a spouse or former spouse on which gain or loss is not
recognized is treated by the recipient as a gift and is not considered a sale or exchange.
The recipient's basis in the property will be the same as the adjusted basis of the
property to 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 fair market value 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.
For more information on transfers to a spouse, see Property Settlements in
Publication 504, Divorced or Separated Individuals.
Rollover of Gain
From Publicly
Traded Securities
You can choose to roll over a capital gain from the sale of publicly
traded securities (securities traded on an established securities market) into a
specialized small business investment company (SSBIC). If you make this choice, the gain
from the sale is recognized only to the extent the amount realized is more than the cost
of the SSBIC common stock or partnership interest bought during the 60-day period
beginning on the date of the sale. You must reduce your basis in the SSBIC stock or
partnership interest by the gain not recognized.
The gain that can be rolled over during any tax year is limited. For individuals, the
limit is the lesser of the following amounts.
- $50,000 ($25,000 for married individuals filing separately).
- $500,000 ($250,000 for married individuals filing separately) minus the gain rolled over
in all earlier tax years.
For more information, see chapter 4 of Publication 550.
For C corporations, the limit is the lesser of the following amounts.
- $250,000.
- $1 million minus the gain rolled over in all earlier tax years.
Sales of Small Business Stock
If you sell qualified small business stock, you may be able to roll
over your gain tax free or exclude part of the gain from your income. Qualified
small business stock is stock issued by a qualified small business after August 10, 1993,
that meets certain tests.
Rollover of gain. You can choose to roll over a capital gain from
the sale of qualified small business stock held longer than 6 months into other qualified
small business stock. This choice is not allowed to C corporations. If you make this
choice, the gain from the sale is recognized only to the extent the amount realized is
more than the cost of the other qualified small business stock bought within 60 days of
the date of sale. You must reduce your basis in the other qualified small business stock
by the gain not recognized.
Exclusion of gain. You may be able to exclude from your gross income
one-half your gain from the sale or exchange of qualified small business stock held by you
longer than 5 years. This exclusion is not allowed to C corporations. Different rules
apply when the stock is held by a partnership, S corporation, regulated investment
company, or common trust fund.
Your gain that is eligible for the exclusion from the stock of any one issuer is
limited to the greater of the following amounts.
- Ten times your basis in all qualified stock of the issuer you sold or exchanged during
the year.
- $10 million ($5 million for married individuals filing separately) minus the gain from
the stock of the same issuer you used to figure your exclusion in earlier years.
More information. For more information on sales of small business
stock, see chapter 4 of Publication 550.
Rollover of Gain
From Sale of
Empowerment Zone Assets
You may qualify for a tax-free rollover of certain gains from the sale
of qualified empowerment zone assets. This means that if you buy certain
replacement property and make the choice described in this section, you postpone part or
all of the recognition of your gain.
You can make this choice if you meet all the following tests.
- You hold a qualified empowerment zone asset for more than 1 year and sell it at a gain.
- Your gain from the sale is a capital gain.
- During the 60-day period beginning on the date of the sale, you buy a replacement
qualified empowerment zone asset in the same zone as the asset sold.
Any part of the gain that is ordinary income cannot be postponed and must be
recognized.
Qualified empowerment zone asset. This means certain stock or
partnership interests in an enterprise zone business. It also includes certain tangible
property used in an enterprise zone business. You must have acquired the asset after
December 21, 2000.
Amount of gain recognized. If you make the choice described in this
section, you must recognize gain only up to the following amount:
- The amount realized on the sale, minus
- The cost of the qualified empowerment zone asset that you bought during the 60-day
period beginning on the date of sale (and did not previously take into account in rolling
over gain on an earlier sale of qualified empowerment zone assets).
If this amount is equal to or more than the amount of your gain, you must recognize the
full amount of your gain. If this amount is less than the amount of your gain, you can
postpone the rest of your gain by adjusting the basis of your replacement property as
described next.
Basis of replacement property. You must subtract the amount of
postponed gain from the basis of the qualified empowerment zone assets you bought as
replacement property.
More information. For more information about empowerment zones, see
Publication 954, Tax Incentives for Empowerment Zones and Other Distressed
Communities. For more information about this rollover of gain, see section 1397B of
the Internal Revenue Code.
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