26 CFR § 1.1245-5 - Adjustments to basis.
In order to reflect gain recognized under section 1245(a)(1), the following adjustments to the basis of property shall be made:
(a) Property acquired in like kind exchange or involuntary conversion.
(1) If property is acquired in a transaction to which section 1245(b)(4) applies, its basis shall be determined under the rules of section 1031(d) or 1033(c).
(2) The provisions of this paragraph may be illustrated by the following example:
(b) Sections 1071 and 1081 transactions.
(1) If property is acquired in a transaction to which section 1071 and paragraph (e)(1) of § 1.1245-4 (relating to limitation for section 1071 transactions, etc.) apply, its basis shall be determined in accordance with the principles of paragraph (a) of this section.
(2) If the basis of property, other than section 1245 property, is reduced pursuant to either an election under section 1071 or the application of section 1082(a)(2), then the basis of the property shall be increased to the extent of the gain recognized under section 1245(a)(1) by reason of the application of paragraph (e)(1)(iii) of § 1.1245-4.