Gift property (disregarding any adjustment for gift tax paid by the donor):
A) Has no basis to the donee because he or she did not pay anything for the property.
B) Has the same basis to the donee as the donor's adjusted basis if the donee disposes of the property at a gain.
C) Has the same basis to the donee as the donor's adjusted basis if the donee disposes of the property at a loss, and the fair market value on the date of gift was less than the donor's adjusted basis.
D) Has no basis to the donee if the fair market value on the date of gift is less than the donor's adjusted basis.
E) None of the above.

Question

Quizplus · Accepted Answer

Gift property has the same basis as the donor's adjusted basis if the donee disposes of the property at a gain. This is known as the carryover basis rule. Therefore, option B is correct. Option A is incorrect because the donee does acquire a basis in gifted property. Option C is incorrect because if the fair market value on the date of gift is greater than the donor's adjusted basis, the donee's basis is the fair market value. Option D is incorrect because the donee still acquires a basis in gifted property even if the fair market value is less than the donor's adjusted basis. Option E is clearly incorrect as there is a correct answer.

Gift Property (Disregarding Any Adjustment for Gift Tax Paid by the Donor)