Basis of Gifted Property

When someone gives you property, your basis is not the value on the day you receive it. Your basis decides how much gain or loss you report when you sell. IRS Publication 551 explains the rules for gifts. IRS: Publication 551 (12-2025)

Three facts you need

To figure the basis of a gift, you need three facts. You need the donor's adjusted basis just before the gift, the fair market value (FMV) at the time of the gift, and any gift tax paid on the property. The donor must also give you records of the adjusted basis and holding period as of the date of transfer. Ask for these records when the gift is made. If you do not have these facts, ask the donor before you sell, because the donor may be the only person who knows the original cost. IRS: Publication 551

When FMV is at least the donor's basis

If the FMV at the time of the gift is equal to or more than the donor's adjusted basis, your basis is the donor's adjusted basis. You may increase that basis by the part of any gift tax paid that is due to the net increase in value. The net increase is the FMV minus the donor's adjusted basis. The gift tax part is found by multiplying the gift tax paid by a fraction. The numerator is the net increase in value, and the denominator is the value of the gift for gift tax purposes. IRS: Publication 551

Example from Publication 551

The IRS gives a 2025 example. A parent gave property with an FMV of $50,000. The parent's adjusted basis was $20,000, and the parent paid $6,220 in gift tax. The IRS works through the fraction and arrives at a basis of $26,033 for the recipient. IRS: Publication 551

When FMV is less than the donor's basis

If the FMV at the time of the gift is less than the donor's adjusted basis, you use two different figures. For a gain, use the donor's adjusted basis. For a loss, use the FMV at the time of the gift. Publication 551 gives this example. Land worth $8,000 when it was given had a donor basis of $10,000. If you sell it for $12,000, you have a $2,000 gain. If you sell it for $7,000, you have a $1,000 loss. If you sell it for between $8,000 and $10,000, you have neither a gain nor a loss. IRS: Publication 551

Gifts are not inheritances

Property received at a person's death follows a different rule. Its basis is generally the FMV on the date of death, not the donor's basis. See inherited property basis for those rules. IRS: Property (Basis, Sale of Home, etc.) FAQ

Records to keep

The donor's records of the adjusted basis and holding period on the gift date.
A written FMV on the gift date, such as an appraisal or a dated market price.
Any gift tax paid on the property, and any gift tax return filed for the gift.
Records of improvements made while you hold the property.

Publication 551 says your basis is adjusted for improvements and other changes while you hold the property. Keep those records with the gift file. IRS: Publication 551

Steps before you sell

Get the donor's adjusted basis, the FMV on the gift date, and any gift tax paid.
Compare the donor's basis with the FMV to see which rule applies to your sale.
Adjust for improvements and any depreciation, if the property was used in a business.
Compare the sale price with the basis you chose, and report the result on your return.

Basis rules can be complex when property was used for business or had earlier gift tax. Use the publication text when your facts are unusual.

General information, not advice for your situation.

Sources: Sources: IRS, Publication 551, Basis of Assets (12-2025) (https://www.irs.gov/pub/irs-pdf/p551.pdf); IRS, FAQ: Property (Basis, Sale of Home, etc.) (https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/property-basis-sale-of-home-etc) This is general information, not advice about your specific return.

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