If I use a gift card to purchase an item and later sell the item at a profit do I include the gift card amount as the cost basis?

[vb245]

Let's say I used an Amazon gift card to purchase a product for $20. A few years later I sold it for $40. It's now a capital gain.  Should I put as the cost basis $20 or $0? Since technically $0 came out of my bank account. I think it should be $20 right? I mean it's no different than someone gifting me cash and using it to buy something. 

[ErnieS0 · Accepted solution]

Yes. You can use the value of the gift card as your cost basis. The basis of a gift is the donor's adjusted basis or fair market value at the time the gift was made.

Since the donor’s cost is presumably the face value of the gift card and it has the fair market value listed on the card that would be your cost basis.

There are a few adjustments that should not apply to a $20 gift card.

Learn more at What is the basis of property received as a gift?

[Bpic2697]

What if you purchase a gift card at a discount and then use that gift card for the full cost basis?  Example: pay $10 for a $20 gift card, purchase something for $20 with that gift card, and then sell for $40.  Is the cost basis $20 or $10?

[DianeW777]

The cost basis is what you actually paid for the gift card.  In your example the cost basis is $10, which would be a $30 taxable gain.

@Bpic2697