If you receive an asset by gift, you take the basis of the person who gives you the asset. Technically, it's called a “substituted” basis or the fmv on date of the gift - as explained hereinbelow

To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value (“FMV”) at the time it was given to you, and any gift tax paid on it.

If the FMV of the property was less than the donor's adjusted basis, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustment to basis during the period you held the property. Your basis for loss on its sale or other disposition is the FMV at the time you received the gift plus or minus any required adjustment to basis during the period you held the property.

If the FMV of the property was equal to or greater than the donor's adjusted basis, your basis for gain or loss on its sale or other disposition is the same as the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of the gift tax paid, depending on the date of the gift.

If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. If fmv is used than the holding period is from the date of the gift.

Let me know if you have any question.

renu@yashcon.com

Please note: This advice is based on limited facts provided by you. Since it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.




Edited by expert00 on March 8 2006 at 7:22 PM