MODULE 34 TAXES: TRANSACTIONS IN PROPERTY 499

However, for purposes of determining a loss, the basis of the property in the hands of the trans-
feree shall not be greater than the fair market value of the property at the time of the transfer.
EXAMPLE: Alan transfers property to his sister, Brianna, for $60,000. The property has a basis of $40,000 and a
FMV of $90, 000 at date of transfer. Alanmust recognize a gain of $60,000 - $40,000 = $20,000, and has made a .
gift to Brianna of $90, 000 - $60,000 = $30,000. Brianna's basis for the property is $60,000.

EXAMPLE: Brenda transfers property to her brother, Carl, for $30,000. The transferred property has a basis of
$40,000 and a FMV of $90,000 at date of transfer. Brenda's realized loss of $40,000 - $30,000 = $10,000 cannot
be recognized, and she has made a gift to Carl of $90,000 - $30,000 = $60,000. Carl's basis for the property is
$40,000.

EXAMPLE: David transfers property to his son, Evan, for $30,000. The property has a basis of $90,000 and a
FMV of $60,000 at date of transfer. David's realized loss of $90,000 - $30,000 = $60,000 cannot be recognized,
and he has made a gift to Evan of $60,000 - $30,000 = $30,000. Evan's basis for the property is $90,000. How-
ever, for purposes of determining a loss on a later sale or other disposition of the property by Evan, the property's
basis is limited to its FMV at date of transfer of $60, 000.

9. Transfer between spouses

a. No gain or loss is generally recognized on the transfer of property from an individual to (or in trust
for the benefit of)

(1) A spouse (other than a nonresident alien spouse), or

(2) A former spouse (other than a nonresident alien former spouse), if the transfer is related to the
cessation of marriage, or occurs within one year after marriage ceases

b. Transfer is treated as if it were a gift from one spouse to the other.

b. Transferee's basis in the property received will be the transferor's basis (even if FMV is less than
the property's basis).
EXAMPLE: H sells property with a basis of $6,000 to his spouse, W, for $8,000. No gain is' recognized to H, and
W's basis for the property is $6,000. W's holding period includes the period that H held the property.

d. If property is transferred to a trust for the benefit of a spouse or former spouse (incident to di-
vorce)

(1) Gain is recognized to the extent that the amount of liabilities assumed exceeds the total ad-
justed basis of property transferred.

(2) Gain or loss is recognized on the transfer of installment obligations.

10. Gain from the sale or exchange of property will be entirely ordinary gain (no capital gain) if the
prop-
erty is depreciable in hands of transferee and the sale or exchange is between

a. A person and a more than 50% owned corporation or partnership

a. A taxpayer and any trust in which such taxpayer or spouse is a beneficiary, unless such benefici-
ary's interest is a remote contingent interest "
b. Constructive ownership rules apply; use rules in Section 7.a.(4)(a) and (b) above
B. Capital Gains and Losses
1. Capital gains and losses result from the "sale or exchange of capital assets." The term capital
assets
includes investment property and property held for personal use. The term specifically excludes

a. Stock in trade, inventory, or goods held primarily for sale to customers in the normal course of
business

a. Depreciable or real property used in a trade or business

b. Copyrights or artistic, literary, etc., compositions created by the taxpayer
(1) They are capital assets only if purchased by the taxpayer.
 (2) Patents are generally capital assets in the hands of the inventor.
d. Accounts or notes receivable arising from normal business activities
e. US government publications acquired other than by purchase at regular price
f. Supplies of a type regularly used or consumed by a taxpayer in the ordinary course of the tax-
payer's trade or business

2. Whether short-term or long-term depends upon the holding period

a. Long-term if held more than one year
a. The day property was acquired is excluded and the day it is disposed of is included.