If the barter is for services (I mow your lawn if you do my taxes), then yes, both parties would owe income tax on the fair market value of the services -- it would be the same as if they had paid each other the same amount in cash.
If the barter is an exchange of goods for services (I'll do your taxes in return for 10 dozen eggs from your farm), then the party that received the goods in exchange for their services owes income tax on the fair market value of the service provided. The party that provided the goods would owe income tax on the capital gain of the goods (fair market value minus the cost paid, or basis).
If both parties are exchanging goods, then it gets more complicated. In some cases (I trade you the deed for my apartment in the city for the deed for your beach house), the IRS deems it a "like-kind exchange", which is NOT a taxable event -- the basis of the old items carries over to the new properties. However, if I exchange my apartment for your car, then it's not a like-kind exchange, because the items exchanged are not of like kind (makes sense?), and both parties pay capital gains (or can claim a loss) vs. the fair market value of the exchange.
To add to the fun, one can do a delayed like-kind exchange by storing the proceeds with a "qualified intermediary", a form of escrow agent. This is often done with real estate, since it means that the counterparties don't have to be willing to swap deeds. To give a specific example, I could sell my apartment in the city, deliver the proceeds to a qualified intermediary, and use them later to buy a beach house, and it would be treated as a tax-free exchange by the IRS (if the prices of the two properties are equal and some other criteria are met).
>> However, if I exchange my apartment for your car, then it's not a like-kind exchange, because the items exchanged are not of like kind (makes sense?), and both parties pay capital gains (or can claim a loss) vs. the fair market value of the exchange.
You probably can't claim a capital loss for a car as you can only claim it for things you hold for investment purposes. Since the car's depreciation is expected to be because of personal use you can't claim loss on it whereas if it were to increase for some reason (memorabilia) you'd have to pay gains.
If the barter is an exchange of goods for services (I'll do your taxes in return for 10 dozen eggs from your farm), then the party that received the goods in exchange for their services owes income tax on the fair market value of the service provided. The party that provided the goods would owe income tax on the capital gain of the goods (fair market value minus the cost paid, or basis).
If both parties are exchanging goods, then it gets more complicated. In some cases (I trade you the deed for my apartment in the city for the deed for your beach house), the IRS deems it a "like-kind exchange", which is NOT a taxable event -- the basis of the old items carries over to the new properties. However, if I exchange my apartment for your car, then it's not a like-kind exchange, because the items exchanged are not of like kind (makes sense?), and both parties pay capital gains (or can claim a loss) vs. the fair market value of the exchange.
To add to the fun, one can do a delayed like-kind exchange by storing the proceeds with a "qualified intermediary", a form of escrow agent. This is often done with real estate, since it means that the counterparties don't have to be willing to swap deeds. To give a specific example, I could sell my apartment in the city, deliver the proceeds to a qualified intermediary, and use them later to buy a beach house, and it would be treated as a tax-free exchange by the IRS (if the prices of the two properties are equal and some other criteria are met).