Gifted and inherited property use different basis rules
See when donor basis, gift-date value, or a decedent valuation controls, including the no-gain-no-loss result for a gift.
The decision that earns the point
Classify the tax fact before calculating
Gifted property generally starts with the donor's adjusted basis for gain, but a lower gift-date fair market value creates a separate loss-basis test. Property acquired from a decedent generally starts with fair market value at the date of death, subject to the statutory valuation alternatives and exceptions in the facts.
Exam use
REG can test gain basis, loss basis, the no-gain-no-loss interval, holding period, and the valuation date for property acquired from a decedent.
Your scratch-paper plan
Solve it in three moves
- 1
Identify the transfer
Classify the acquisition as a gift or property acquired from a decedent before selecting a basis rule.
26 USC §1015: Basis of property acquired by gifts and transfers in trust - 2
For gifts, compare basis and value
Use donor basis for gain and test the gift-date fair market value rule for loss.
26 CFR §1.1015-1: Basis of property acquired by gift after December 31, 1920 - 3
For inherited property, use the statutory valuation facts
Apply date-of-death value unless the question supplies a valid alternative-valuation or other statutory exception.
26 USC §1014: Basis of property acquired from a decedent
Worked problem
Work the facts before choosing the answer
Donor basis is $70,000 and gift-date fair market value is $50,000. The recipient later sells for $60,000. Ignore gift-tax basis adjustments.
CPAPass original exam illustration using stated assumptions
Show the work
For gain, the reference basis is $70,000. For loss, the reference basis is $50,000. The $60,000 sales price falls between those two amounts.
Rule source: 26 USC §1015: Basis of property acquired by gifts and transfers in trustAnswer
Recognize no gain and no loss under the dual-basis gift rule for these facts.
Rule source: 26 USC §1015: Basis of property acquired by gifts and transfers in trustDo it now
Test the same decision with a fresh question
Start with free REG practice. Create an account only when you want the 5-day no-card CPAPass trial and continued section practice.
The trap and the repair
Common trap
Using fair market value for every gift or donor basis for every inherited asset reverses the two starting models.
Repair
Write gift or decedent transfer first, identify the applicable valuation date, and only then compare sales price with the correct basis.
Transfer-basis comparison
Choose the basis rule before measuring the sale
The same asset can produce different basis answers because the transfer type and the direction of the later sale matter.
| Transfer fact | Basis decision | Disposition consequence | Authority |
|---|---|---|---|
| Gift-date value is at least donor basis | Use donor adjusted basis, subject to statutory adjustments | Measure gain or loss from the carryover basis | 26 USC §1015: Basis of property acquired by gifts and transfers in trust |
| Gift-date value is below donor basis | Use donor basis for gain and gift-date value for loss | A sale between the two reference amounts produces neither gain nor loss | 26 CFR §1.1015-1: Basis of property acquired by gift after December 31, 1920 |
| Property acquired from a decedent | Use the applicable §1014 valuation rule | Compare later amount realized with that basis | 26 USC §1014: Basis of property acquired from a decedent |
After a miss
Practice the dual-basis decision
- 1
Label the acquisition gift or decedent transfer before writing any number from the facts.
- 2
For a gift with lower fair market value, solve three sale prices: below value, between value and donor basis, and above donor basis.
- 3
On the next REG basis problem, identify the transfer rule before calculating any gain or loss.
Your exam workflow
- Step 1Read the requirementIdentify what the task asks you to decide about gifted vs inherited property basis.
- Step 2Sort the factsClassify the acquisition as a gift or property acquired from a decedent before selecting a basis rule.
- Step 3Apply the ruleUse donor basis for gain and test the gift-date fair market value rule for loss.
- Step 4Check the outputApply date-of-death value unless the question supplies a valid alternative-valuation or other statutory exception.
Keep the next step narrow
Quick questions
What is the shortest useful answer for gifted vs inherited property basis?
Gifted property generally starts with the donor's adjusted basis for gain, but a lower gift-date fair market value creates a separate loss-basis test. Property acquired from a decedent generally starts with fair market value at the date of death, subject to the statutory valuation alternatives and exceptions in the facts.
How can gifted vs inherited property basis appear on the CPA Exam?
REG can test gain basis, loss basis, the no-gain-no-loss interval, holding period, and the valuation date for property acquired from a decedent. The exact task can change, so identify the governing facts before applying the rule.
What is the most common mistake with gifted vs inherited property basis?
Using fair market value for every gift or donor basis for every inherited asset reverses the two starting models. Write gift or decedent transfer first, identify the applicable valuation date, and only then compare sales price with the correct basis.
Where should I practice gifted vs inherited property basis?
After the worked example, use REG practice for a fresh question that requires the same decision. If the miss depends on capital gain and loss measurement, review that handoff before trying another set.
How should I review gifted vs inherited property basis after a missed question?
Label the acquisition gift or decedent transfer before writing any number from the facts. For a gift with lower fair market value, solve three sale prices: below value, between value and donor basis, and above donor basis. On the next REG basis problem, identify the transfer rule before calculating any gain or loss.