695 / How is the tax basis of property acquired by gift determined?

If the property was acquired by gift after 1920, the basis for determining gain is generally the same as in the hands of the donor. However, in the case of property acquired by gift after September 1, 1958 and before 1977, this basis may be increased by the amount of any gift tax paid, but total basis may not exceed the fair market value of the property at the time of gift. In the case of property received by gift after 1976, the donee takes the donor’s basis plus a part of the gift tax paid. The added fraction is the amount of the gift tax paid that is attributable to appreciation in the value of the gift over the donor’s basis. The amount of attributable gift tax bears the same ratio to the amount of gift tax paid as net appreciation bears to the value of the gift.¹

For the purpose of determining loss, the basis of property acquired by gift after 1920 is the foregoing substituted basis or the fair market value of the property at the time of gift, whichever is lower.² As to property acquired by gift before 1921, basis is the fair market value of the property at time of acquisition.³

---

1. IRC § 1015.

2. IRC § 1015(a).