ProSeries Professional 2025 – Related Party Bargain Sale of Rental Property (IRC §267 / Form 4797 / Part Sale-Part Gift)

Forum|Forum|1 day ago
August 7, 2026
3 replies
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I'm preparing a 2025 return in ProSeries Professional. My client sold a Schedule E rental property to his brother in a part sale/part gift (gift of equity).

After allocating the sales price between the building and the land, the building has a gain, but the land has a loss. ProSeries nets the land loss against the building gain.

Since this is a related-party sale under IRC §267, should the land loss be disallowed? If so, how are you reporting this in ProSeries Professional without changing the historical land basis or using overrides?

I'm looking for the correct tax treatment and any IRS or Intuit authority supporting the reporting method.

ProSeries Professional

T

Terry53029

Intuit Community Champion

You also must include in the gift FMV vs actual sale price. Any gain to seller will be ordinary income (no capital gain) For the sale you net land and improvements, but you separate them for deprecation. The buyers basis will be the greater of price paid or sellers basis plus any gift tax paid. No loss is allowed the seller. You should research pub 544 to be sure you understand all parts of sale to related person, as buyer when he sells property there are different rules when bought from related person.

M

MTROT2010Author

Level 2

Thank you, this is very helpful. When you say “any gain to the seller will be ordinary income,” can you clarify what provision makes the gain ordinary in this situation? The buyers are the taxpayer's sister and brother-in-law, and the property is §1250 residential rental real estate. Are you referring to depreciation recapture under the part-sale/part-gift rules in Pub. 544, §1239, or another provision?

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Terry53029

Intuit Community Champion

Pub 544 see chapter on Sales and Exchanges Between Related Persons

Gain Is Ordinary Income

If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction.

Gain Is Ordinary Income

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