The cost basis of property received as a gift is generally the same as the donor’s adjusted basis. This means the recipient typically assumes the original owner’s purchase price, plus any improvements made while the donor owned the property, less any depreciation claimed by the donor, if applicable. For example, if a parent purchased stock for $10,000 and then gifted it to a child, the child’s initial cost basis is generally $10,000.
Understanding the cost basis is crucial for determining capital gains or losses when the property is eventually sold. Accurate calculation ensures compliance with tax regulations and minimizes potential tax liabilities. Historically, inconsistencies in determining the basis have led to increased scrutiny from tax authorities, making proper documentation and understanding essential.
