In short
Adjusted basis is a property's original basis (usually cost) increased by capital improvements and reduced by depreciation, casualty losses and other recoveries of capital. Gain or loss on sale is the amount realized minus adjusted basis.
Key takeaways
- Gifted property generally keeps the donor's basis; if its value at the gift was lower, that value is used to measure a loss.
- Inherited property generally takes a basis equal to fair market value at the date of death.
- Basis in property received in a like-kind exchange reflects the deferred gain.
Where it's tested
REG: Property Transactions: Basis & Cost Recovery — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A donor gives property with an adjusted basis of $10,000 and a fair market value of $6,000 at the date of gift. The donee later sells it for $8,000. What is the donee's recognized gain or loss?