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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
You want your new real property to have a At the time of the transfer, the transferor of any gift tax paid, depending on the date of
larger basis for depreciation, so you arrange to must give you the records necessary to deter- the gift.
sell your old property to the other party. You mine the adjusted basis and holding period of
then buy the new property from that individual the property as of the date of transfer. Also, for figuring gain or loss from a sale or
for $900,000. However, if the sale and pur- other disposition of the property, or for figuring
chase are reciprocal and mutually dependent, For more information, see Pub. 504, Di- depreciation, depletion, or amortization deduc-
you're treated as having exchanged your old vorced or Separated Individuals. tions on business property, you must increase
property for the new property. In that case, your or decrease your basis by any required adjust-
basis for depreciation for the new property is ments to basis while you held the property. See
$650,000, the same as if you had exchanged Property Adjusted Basis, earlier.
the old property for the new property. Received as a Gift
Gift received before 1977. If you received a
Partial Business Use of Property To figure the basis of property you receive as a gift before 1977, increase your basis in the gift
gift, you must know its adjusted basis (defined (the donor's adjusted basis) by any gift tax paid
If you have real property, a portion of which is earlier) to the donor just before it was given to on it. However, don't increase your basis above
used for business and a portion of which is you, its FMV at the time it was given to you, and the FMV of the gift at the time it was given to
used for personal use, and you exchange it in a any gift tax paid on it. you.
nontaxable exchange for real property to be
Example 1. You were given a house in
used wholly or partly in your business, the basis FMV Less Than 1976 with an FMV of $21,000. The donor's ad-
of the property you receive is figured separately Donor's Adjusted Basis justed basis was $20,000. The donor paid a gift
for the business and nonbusiness use parts.
The part of the property used for business is an If the FMV of the property at the time of the gift tax of $500. Your basis is $20,500, the donor's
exchange of like-kind property. The per- is less than the donor's adjusted basis, your ba- adjusted basis plus the gift tax paid.
sonal-use part of the property is property on sis depends on whether you have a gain or a Example 2. If, in Example 1, the gift tax
which gain is recognized. loss when you dispose of the property. Your ba- paid had been $1,500, your basis would be
sis for figuring gain is the same as the donor's $21,000. This is the donor's adjusted basis plus
Figure the adjusted basis of each part of the adjusted basis plus or minus any required ad- the gift tax paid, limited to the FMV of the house
property by taking into account any adjustments justment to basis while you held the property. at the time you received the gift.
to basis. Deduct the depreciation you took or Your basis for figuring loss is its FMV when you
could have taken from the adjusted basis of the received the gift plus or minus any required ad- Gift received after 1976. If you received a gift
business part. Then figure the amount realized justment to basis while you held the property after 1976, increase your basis in the gift (the
for your property and allocate it to the business (see Adjusted Basis, earlier). donor's adjusted basis) by the part of the gift tax
and nonbusiness parts of the property. paid on it that is due to the net increase in value
If you use the donor's adjusted basis for fig- of the gift. Figure the increase by multiplying the
You're deemed to have received, in ex- uring a gain and get a loss, and then use the gift tax paid by a fraction. The numerator of the
change for the nonbusiness part, an amount FMV for figuring a loss and have a gain, you fraction is the net increase in value of the gift,
equal to its FMV on the date of the exchange. have neither gain nor loss on the sale or dispo- and the denominator is the amount of the gift.
The basis of the property you acquired is the to- sition of the property. The net increase in value of the gift is the
tal basis of the property transferred (adjusted to FMV of the gift less the donor's adjusted basis.
the date of the exchange), increased by any Example. You received an acre of land as The amount of the gift is its value for gift tax pur-
gain recognized on the nonbusiness part. a gift. At the time of the gift, the land had an poses after reduction by any annual exclusion
FMV of $8,000. The donor's adjusted basis was and marital or charitable deduction that applies
If the nonbusiness part of the property $10,000. After you received the land, no events to the gift. For information on the gift tax, see
TIP transferred is your main home, you occurred to increase or decrease your basis. If Pub. 559, Survivors, Executors, and Adminis-
may qualify to exclude from income all you sell the land for $12,000, you'll have a trators.
or part of the gain on that part. For more infor- $2,000 gain because you must use the donor's
mation, see Pub. 523. adjusted basis ($10,000) at the time of the gift Example. In 2018, you received a gift of
as your basis to figure gain. If you sell the land property from your mother that had an FMV of
for $7,000, you'll have a $1,000 loss because $50,000. Her adjusted basis was $20,000. The
Property Transferred you must use the FMV ($8,000) at the time of amount of the gift for gift tax purposes was
From a Spouse the gift as your basis to figure a loss. $35,000 ($50,000 minus the $15,000 annual
If the sales price is between $8,000 and exclusion). She paid a gift tax of $7,100. Your
The basis of property transferred to you or $10,000, you have neither gain nor loss. For in- basis, $26,106, is figured as follows:
transferred in trust for your benefit by your stance, if the sales price was $9,000 and you
spouse (or former spouse if the transfer is inci- tried to figure a gain using the donor's adjusted Fair market value $50,000
dent to divorce) is the same as your spouse's basis ($10,000), you would get a $1,000 loss. If Minus: Adjusted basis 20,000
adjusted basis. However, adjust your basis for you then tried to figure a loss using the FMV Net increase in value $30,000
any gain recognized by your spouse or former ($8,000), you would get a $1,000 gain. Gift tax paid $7,100
spouse on property transferred in trust. This Multiplied by ($30,000 ÷ $35,000) 0.86
rule applies only to a transfer of property in trust Business property. If you hold the gift as $6,106
in which the liabilities assumed, plus the liabili- business property, your basis for figuring any Gift tax due to net increase in value
Adjusted basis of property to your
ties to which the property is subject, are more depreciation, depletion, or amortization deduc- mother 20,000
than the adjusted basis of the property transfer- tion is the same as the donor's adjusted basis Your basis in the property $26,106
red. plus or minus any required adjustments to basis
while you hold the property.
If the property transferred to you is a series Inherited Property
E, series EE, or series I U.S. savings bond, the FMV Equal to or More Than
transferor must include in income the interest Donor's Adjusted Basis The basis of property inherited from a decedent
accrued to the date of transfer. Your basis in the is generally one of the following.
bond immediately after the transfer is equal to If the FMV of the property is equal to or greater 1. The FMV of the property at the date of the
the transferor's basis increased by the interest than the donor's adjusted basis, your basis is individual's death.
income includible in the transferor's income. For the donor's adjusted basis at the time you re-
more information on these bonds, see Pub. ceived the gift. Increase your basis by all or part
550.
Publication 551 (December 2018) Page 9
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