Determining Basis for Property Received as a Gift
If a partner acquires an interest in a partnership through property received as a gift, inheritance, or another means, rather than by contributing money or property, you must determine the partner’s basis using the rules in Publication 551. Below, we explain how to apply these rules to your situation.
Property Received as a Gift
To determine the basis of gifted property, consider the following:
- Adjusted Basis and FMV: Know the adjusted basis of the property to the donor just before the gift, its Fair Market Value (FMV) at the time of the gift, and any gift tax paid.
- FMV Less Than Donor’s Adjusted Basis: If the FMV of the property is less than the donor’s adjusted basis, your basis for calculating gain or loss depends on the property’s value when you dispose of it. For a gain, use the donor’s adjusted basis plus any adjustments. For a loss, use the FMV at the time of the gift plus any adjustments. If you calculate both a gain and a loss, the sale or disposition results in neither gain nor loss.
Example
Suppose you receive an acre of land as a gift. The FMV at the time of the gift is $8,000, and the donor’s adjusted basis is $10,000. If you sell the land for $12,000, your gain is $2,000 using the donor’s adjusted basis. If you sell it for $7,000, your loss is $1,000 using the FMV.
FMV Equal to or Greater Than Donor’s Adjusted Basis
When the FMV of the property equals or exceeds the donor’s adjusted basis, your basis is the donor’s adjusted basis at the time of the gift. Adjust this basis by any gift tax paid, depending on the gift’s date.
Business Property Considerations
For business property received as a gift, use the donor’s adjusted basis for calculating depreciation, depletion, or amortization. Adjust your basis for any changes while you hold the property.
Gift Tax Adjustments
If you received the gift after 1976, adjust the basis by the portion of gift tax paid due to the net increase in the gift’s value. Calculate this by multiplying the gift tax paid by a fraction where the numerator is the net increase in value and the denominator is the gift amount. For more details, refer to Publication 559.
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