Related Party Transactions

Don't sell property to your siblings (whole or half blood), children, parents, grandparents or spouse and try to deduct a loss on the sale. The IRS doesn't allow you to recognize the loss. If the relative you sold it to sells it to an unrelated party, they use your basis to determine the taxable gain or loss. The disallowed loss is ignored. For example, if James sells stock with a basis of $5,000 to his sister Jane for $4,000, the $1,000 loss is disallowed. If Jane then sells the stock for $6,000 to an unrelated party, then her recognized gain is only $1,000 instead of $2,000. Cousins, aunts, uncles, stepparents, or in laws are not considered related parties for this purpose.