What is the basis of property received as a gift?
Answer:
To determine your basis in property you received as a gift, you must know the property's adjusted basis to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and the amount of any gift tax paid with respect to the gift.
For purposes of determining gain, you generally take a transferred basis when you receive property as a gift. This means that your basis in the property is the same as the donor's basis in the property. More specifically, if the FMV of the property at the time of the gift was equal to or greater than the donor's adjusted basis, your basis in the property immediately after the gift will be the same as the donor's adjusted basis at the time you received the gift. If the donor paid any gift tax, you should increase your basis by all or part of the gift tax paid, depending on the date of the gift.
For example, your father gives you XYZ stock today that is currently worth $1,000. Your father has an adjusted basis in the stock of $500. Your basis in the stock, for purposes of determining gain on any future sale of the stock, is $500 (transferred basis).
If the FMV of the property at the time of the gift was less than the donor's adjusted basis, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis, plus or minus any required adjustments to basis during the period you held the property.
A different rule applies if you sell gifted property at a loss. If the FMV of the property at the time of the gift was less than the donor's adjusted basis, your basis for loss on its sale or other disposition is its FMV at the time of the gift, plus or minus any required adjustments to basis during the period you held the property. In other words, for purposes of determining losses, you use the lesser of the donor's adjusted basis or the FMV at the time of the gift as your basis.
For example, your father gives you XYZ stock today that is currently worth $200. At the time of the gift, he has an adjusted tax basis in the stock of $500. After receiving the stock, you immediately sell it for $200. You do not recognize a loss because your basis in the stock was its FMV at the time of the gift, $200.
