Question

David received a gift of stock from Ted this year when it was worth $24,000. Ted purchased the stock for $18,000 five years ago and paid $2,000 of gift taxes on the gift. What is David’s basis for the stock?

Answer 1

Solution:

David uses Ted’s basis increased by a portion of the gift tax related to appreciation on the gift determined as follows:

$2,000 gift tax x [($24,000 – 18,000) / 24,000] = $500 gift tax related to appreciation

$18,000 carryover basis from donor + $500 gift tax = $18,500

David’s basis for the stock = $18,500

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