When property is received as a gift, the recipient’s initial investment value for tax purposes is typically the donor’s original cost. This value carries over and becomes crucial for determining potential capital gains or losses upon the eventual sale or disposition of the asset. For example, if an individual receives stock as a gift purchased by the original owner for $10 per share, the recipient’s cost basis is also $10 per share, regardless of the stock’s market value at the time of the gift.
Understanding the initial investment value derived from a gift is essential for accurate tax calculations. This carried-over value ensures equitable taxation by preventing the artificial inflation or deflation of profits or losses. This principle also historically served to discourage tax avoidance strategies related to gifting appreciated assets. Accurately determining the gain or loss on a gifted asset impacts an individual’s tax liability and, consequently, their financial planning.
