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.

1. You hold a qualified empowerment zone asset for more than 1 year and sell it at a gain.
2. Your gain from the sale is a capital gain.
3. 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:

1. The amount realized on the sale, minus
2. 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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