An uncle gifts a parcel of land to his niece,and he has to pay gift taxes. The land has appreciated substantially since he purchased it 20 year ago. A portion of gift taxes paid by the uncle will increase the niece's basis of the land.

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When a gift is given, the recipient receives the same basis as the donor had in the property. However, if gift taxes are paid, the portion of the gift taxes attributable to the appreciation in value of the property will increase the recipient's basis in the property. This is known as the "gift tax basis rule" and is outlined in IRS Publication 551. Therefore, in this scenario, a portion of the gift taxes paid by the uncle will increase the niece's basis of the land.

An Uncle Gifts a Parcel of Land to His Niece,and