Basis of Purchased, Gifted, and Inherited Property
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
What changes the answer?
Gift basis can carry over for gain while a lower fair-market-value measure applies for loss; inherited property follows a different framework.
A tax-practice scenario
A taxpayer sells stock received as a gift when its value had fallen before the gift. Compute which basis applies to the actual sale price.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Using fair market value at receipt for every gift and inherited asset.
Turn the rule into recall.
Write acquisition method, donor basis, fair market value, adjustments, and sale amount before calculating gain or loss.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.