Gift Tax Basis

Lesson:

When you are given a gift, you need to calculate its basis in order to figure out gains and losses when you sell it.

First, you need to know the adjusted basis value of the gift at time of receiving, and the fair market value at time of receiving.

If the fair market value is greater than the gift giver's net basis value, you use the gift giver's basis.

Otherwise, it gets a bit more complicated.

If selling at a gain, use the giver's basis. This minimizes the gain.

If selling at a loss, use the fair market value. This minimizes the loss.

If the selling price is between the fair market value and the adjusted basis value, use the sales price as the basis.

You're a tax preparer, trying to figure out the basis of a gift.

Here's what you know:

  • The gift recipient eventually sold the item for $187.
  • The item's fair market value at time of gifting was $346.
  • The giver's adjusted basis was $380.
What is the gift recipient's basis of the gift?

Answer:

  • The gift's basis is $346.

Explanation:

    When an item sells below fair market value and the giver's adjusted basis, the tax code tries to minimize the loss.
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