What is Basis of gifted property?
In short
A person who receives property as a gift generally takes the donor's adjusted basis (a carryover basis). If the property's fair market value at the date of the gift is below the donor's basis, a dual basis rule applies.
Key takeaways
- Under the dual basis rule, use the donor's basis to measure gain and the lower fair market value to measure loss.
- If the sale price falls between the two, no gain or loss is recognized.
- When the donor's basis is used, the donor's holding period carries over to the recipient.
Example
Stock with a donor basis of $10,000 and a value of $7,000 at the gift: sold for $6,000 there is a $1,000 loss; for $8,000, no gain or loss.
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?