During 2012, Carl Crofts received a gift of property having a fair market value of $25,000 at the time of the gift. fte donor's adjusted basis in the property at the time of the gift was $21,000. fte donor paid a gift tax of $700 on the property. Carl's basis in the property is $21,700.

Question

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the donor's adjusted basis is increased by the proportion of the gift tax paid which is attributable to the appreciation in the value of the gift. the appreciation in the gift is $4,000 and the increase in the basis for the gift tax is $112 ($700 gift tax × $4,000 divided by $25,000).

During 2012, Carl Crofts Received a Gift of Property Having