Tax Tip Podcast or Blog Post for Real Estate Professionals and Basis of Property Received as a Gift

Tax Tip Podcasts & Blog Posts for Realtors, Brokers, Real Estate Professionals
Basis of Property Received as a Gift
Updated 03/29/2021

To calculate the original basis of property you receive as a gift, you must know:

  1. the donor’s adjusted basis in the property immediately before the gift,
  2. the property’s fair market value at the time of the gift; and
  3. the amount of any gift tax paid on the gift.

If the fair market value of the property at the time of the gift is less than the donor’s adjusted basis, your basis depends on whether you have a gain or a loss when you later dispose of the property:

  • Your basis for calculating gain is the same as the donor’s adjusted basis, plus or minus any required adjustment to basis while you held the property.
  • Your basis for calculating loss is the property’s fair market value when you received the gift, plus or minus any required adjustment to basis while you held the property.

Business Property: If you hold the gift as business property, your basis for calculating any depreciation, depletion, or amortization deduction is the same as the donor’s adjusted basis, plus or minus any required adjustments to basis while you hold the property.

If the fair market value of the property is equal to or greater than the donor’s adjusted basis, your basis is the donor’s adjusted basis at the time you received the gift.

You increase the basis by all or part of any gift tax paid, depending on the date of the gift. Also, for calculating gain or loss from a sale or other disposition of the property, or for calculating depreciation, depletion, or amortization deductions on business property, you must increase or decrease basis by any required adjustments to basis while you held the property.

Received before 1977: For a gift you received before 1977, you must increase your basis in the gift (the donor’s adjusted basis) by any gift tax paid on it, but not above the fair market value of the gift at the time of the gift. For a gift you received after 1976, you must increase your basis in the gift (the donor’s adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. You calculate the increase by multiplying the gift tax paid by a fraction. The numerator of the fraction is the net increase in value of the gift, and the denominator is the amount of the gift. The net increase in value of the gift is the fair market value of the gift less the donor’s adjusted basis. The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift.

As you can see, there are many issues to consider in computing the basis of property you received as a gift.

Brenda Fitch Real Estate Professional
Brenda Fitch Real Estate Professional

Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.

DON FITCH, CPA
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(Updated 03/29/2021 320-840)

Published by Don Fitch, CPA

Offers in Compromise, Wage Levy Releases, Installment Agreements, IRS Audits, and much more IRS assistance. Also, allow us to Help you complete your Tax Returns from 1913 to present (100+ Years) and for any of the 50 States.

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