Tax Implication of Receiving a Gift

Posted December 2019

In general, the receipt of a gift has no effect on your taxable income. Any income you receive from that property is taxable to you when you receive it. Your cost basis of the property you have received is the same as the donor’s cost basis. You will need to ask for that information, as you will need to know that if you sell the property.

There are two exceptions to that rule: the first is that if the donor actually paid gift tax, you may be able to add some or all of the gift tax to your cost basis. The donors will be able to give you that information after they file their gift tax return for the year of the gift. The second exception is that if the value of the property is less than the donor’s cost on the date of the gift, you have two different bases, so you will need to know both the value on the date of the gift and the donor’s cost.

Your basis for loss, should you sell the property for less than its value when you received it, is the value on the date of the gift. Your basis for gain is the donor’s basis. If you sell the property for an amount that falls between those numbers, you have neither a gain nor a loss to report, although you will have to report the sale. Your holding period includes the time that the donor owned the property.

Please call us if you receive a generous gift from somebody this year and would like to discuss the effect on your income tax situation.