Yes, you still have to report it but you cannot deduct losses on the sale or exchange of property between you and your relative (the IRS calls them “related persons”).
You can either have a gain or a loss depending on whether or not the adjusted basis is more or less than the amount realized. The “adjusted basis of property” is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. The “amount realized” is the total of all the money you receive plus the fair market value (defined below) of all property or services you receive.
The IRS is a little more stringent when it comes to selling or exchanging property with a relative. In order to prevent taxpayers from taking excessive losses, you are not allowed to deduct a loss on the sale or exchange of property to a relative whether it is direct or indirect.
If this applies to you, gains from the sale of business property to a relative may be treated as ordinary income. There is an exception to this rule:No gain or loss is recognized when property is transferred from an individual to (or in trust for the benefit of) a spouse or ex-spouse (if part of a divorce). This transaction is reported on Form 4797.