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Page 9 of 15 Fileid: … ons/p551/202212/a/xml/cycle03/source 15:01 - 17-Jan-2023
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Example. You have real property held for If the property transferred to you is a series FMV Equal to or More Than
productive use in your trade or business. Its ad- E, series EE, or series I U.S. savings bond, the Donor's Adjusted Basis
justed basis is $500,000 and its FMV is transferor must include in income the interest
$750,000. You're interested in replacing the accrued to the date of transfer. Your basis in the If the FMV of the property is equal to or greater
property with real estate containing a building bond immediately after the transfer is equal to than the donor's adjusted basis, your basis is
worth $900,000. Ordinarily, you would swap the transferor's basis increased by the interest the donor's adjusted basis at the time you re-
properties and pay the $150,000 difference in income includible in the transferor's income. For ceived the gift. Increase your basis by all or part
FMVs. Your basis would then be $650,000 more information on these bonds, see Pub. of any gift tax paid, depending on the date of
($150,000 cash paid plus $500,000 adjusted 550. the gift.
basis in your old property).
You want your new real property to have a At the time of the transfer, the transferor Also, for figuring gain or loss from a sale or
larger basis for depreciation, so you arrange to must give you the records necessary to deter- other disposition of the property, or for figuring
sell your old property to the other party. You mine the adjusted basis and holding period of depreciation, depletion, or amortization deduc-
then buy the new property from that individual the property as of the date of transfer. tions on business property, you must increase
for $900,000. However, if the sale and pur- For more information, see Pub. 504, Di- or decrease your basis by any required adjust-
chase are reciprocal and mutually dependent, vorced or Separated Individuals. ments to basis while you held the property. See
you're treated as having exchanged your old Adjusted Basis, earlier.
property for the new property. In that case, your
basis for depreciation for the new property is Property Gift received before 1977. If you received a
$650,000, the same as if you had exchanged Received as a Gift gift before 1977, increase your basis in the gift
the old property for the new property. (the donor's adjusted basis) by any gift tax paid
To figure the basis of property you receive as a on it. However, don't increase your basis above
Partial Business Use of Property gift, you must know its adjusted basis (defined the FMV of the gift at the time it was given to
earlier) to the donor just before it was given to you.
If you have real property, a portion of which is you, its FMV at the time it was given to you, and
used for business and a portion of which is any gift tax paid on it. Example 1. You were given a house in
used for personal use, and you exchange it in a 1976 with an FMV of $21,000. The donor's ad-
justed basis was $20,000. The donor paid a gift
nontaxable exchange for real property to be FMV Less Than tax of $500. Your basis is $20,500, the donor's
used wholly or partly in your business, the basis Donor's Adjusted Basis adjusted basis plus the gift tax paid.
of the property you receive is figured separately
for the business and nonbusiness use parts. If the FMV of the property at the time of the gift Example 2. If, in Example 1, the gift tax
The part of the property used for business is an is less than the donor's adjusted basis, your ba- paid had been $1,500, your basis would be
exchange of like-kind property. The per- sis depends on whether you have a gain or a $21,000. This is the donor's adjusted basis plus
sonal-use part of the property is property on loss when you dispose of the property. Your ba- the gift tax paid, limited to the FMV of the house
which gain is recognized. sis for figuring gain is the same as the donor's at the time you received the gift.
adjusted basis plus or minus any required ad-
Figure the adjusted basis of each part of the justment to basis while you held the property. Gift received after 1976. If you received a gift
property by taking into account any adjustments Your basis for figuring loss is its FMV when you after 1976, increase your basis in the gift (the
to basis. Deduct the depreciation you took or received the gift plus or minus any required ad- donor's adjusted basis) by the part of the gift tax
could have taken from the adjusted basis of the justment to basis while you held the property paid on it that is due to the net increase in value
business part. Then figure the amount realized (see Adjusted Basis, earlier). of the gift. Figure the increase by multiplying the
for your property and allocate it to the business gift tax paid by a fraction. The numerator of the
and nonbusiness parts of the property. If you use the donor's adjusted basis for fig- fraction is the net increase in value of the gift,
uring a gain and get a loss, and then use the and the denominator is the amount of the gift.
You're deemed to have received, in ex- FMV for figuring a loss and have a gain, you The net increase in value of the gift is the
change for the nonbusiness part, an amount have neither gain nor loss on the sale or dispo- FMV of the gift less the donor's adjusted basis.
equal to its FMV on the date of the exchange. sition of the property. The amount of the gift is its value for gift tax pur-
The basis of the property you acquired is the to- poses after reduction by any annual exclusion
tal basis of the property transferred (adjusted to Example. You received an acre of land as and marital or charitable deduction that applies
the date of the exchange), increased by any a gift. At the time of the gift, the land had an to the gift. For information on the gift tax, see
gain recognized on the nonbusiness part. FMV of $8,000. The donor's adjusted basis was Pub. 559, Survivors, Executors, and Adminis-
$10,000. After you received the land, no events trators.
If the nonbusiness part of the property occurred to increase or decrease your basis. If
TIP transferred is your main home, you you sell the land for $12,000, you'll have a Example. In 2022, you received a gift of
may qualify to exclude from income all $2,000 gain because you must use the donor's property from your mother that had an FMV of
or part of the gain on that part. For more infor- adjusted basis ($10,000) at the time of the gift $50,000. Her adjusted basis was $20,000. The
mation, see Pub. 523. as your basis to figure gain. If you sell the land amount of the gift for gift tax purposes was
for $7,000, you'll have a $1,000 loss because $34,000 ($50,000 minus the $16,000 annual
you must use the FMV ($8,000) at the time of exclusion). She paid a gift tax of $6,880. Your
Property Transferred the gift as your basis to figure a loss. basis, $26,054, is figured as follows:
From a Spouse If the sales price is between $8,000 and
$10,000, you have neither gain nor loss. For in-
The basis of property transferred to you or stance, if the sales price was $9,000 and you Fair market value . . . . . . . . . . . . . . . . . $50,000
Minus: Adjusted basis . . . . . . . . . . . . . . 20,000
transferred in trust for your benefit by your tried to figure a gain using the donor's adjusted Net increase in value . . . . . . . . . . . . . . . $30,000
spouse (or former spouse if the transfer is inci- basis ($10,000), you would get a $1,000 loss. If
dent to divorce) is the same as your spouse's you then tried to figure a loss using the FMV Gift tax paid . . . . . . . . . . . . . . . . . . . . . $6,880
adjusted basis. However, adjust your basis for ($8,000), you would get a $1,000 gain. Multiplied by ($30,000 ÷ $34,000) . . . . . . 0.88
any gain recognized by your spouse or former Gift tax due to net increase in value . . . . . $6,054
spouse on property transferred in trust. This Business property. If you hold the gift as Adjusted basis of property to your
mother . . . . . . . . . . . . . . . . . . . . . . . 20,000
rule applies only to a transfer of property in trust business property, your basis for figuring any Your basis in the property. . . . . . . $26,054
in which the liabilities assumed, plus the liabili- depreciation, depletion, or amortization deduc-
ties to which the property is subject, are more tion is the same as the donor's adjusted basis
than the adjusted basis of the property transfer- plus or minus any required adjustments to basis
red. while you hold the property.
Publication 551 (December 2022) Page 9
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