How to Calculate the Basis When Gift Taxes Are Paid
A gift is anything transferred from one person to another without fully paying the amount the asset is worth. An individual may gift to another up to a given annual exclusion amount without paying taxes on the gift. Gift taxes are paid by the donor when the value of assets gifted is larger than the annual exclusion. (As an example, say Bob gave $25,000 in stock to his son and the annual exclusion is $12,000. The taxable portion of the gift is $13,000.)
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Things You'll Need
- Receipts or statements indicating the donor's basis Evidence of gift taxes paid, if any (income tax returns) Fair market value of the gift on the date it was gifted
Instructions
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Use the fair market value on the date the gift was made as the basis when calculating gift taxes. The fair market value can be determined by an appraisal or estimate of what an objective person would pay for it. For stocks or other investments, the bid quote (the price it would sell for) would be the basis.
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If calculating income taxes, determine if the property has appreciated beyond the donor's original basis and was subject to gift taxes. For example, let's say Emily gave Mark $200,000. Emily's original basis was $125,000. After applying $12,000 annual exclusion, Emily paid $84,480 in gift taxes in the 46-percent gift tax bracket.
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Calculate the gift appreciation. Subtract donor's original basis from the current fair market value of the gift. Example: Appreciation = $200,000 fair market value - $125,000 original basis = $75,000. This means the value of the gift has gone up by $75,000.
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Calculate the gift tax on the appreciation. Multiply the appreciation by the gift tax rate. Example: Gift tax on appreciation = $75,000 appreciation x .46 gift tax rate = $34,500. The donor paid $34,500 in gift taxes on the appreciation of the gift.
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Calculate the receiver's basis. Add the gift tax on the appreciation to the donor's original basis. Example: Receiver's basis = $34,500 gift tax on the appreciation + $125,000 original basis = $159,500.
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If the value of the gift is less than the donor's basis, the donee's basis will depend on whether the property is eventually sold at a gain or a loss. If it is sold at a loss, the fair market value at the date it was gifted is used to calculate the basis. If sold at a gain, the donor's basis is used to calculate the donee's basis. If the proceeds from the sale are between the donor's basis and the fair market value at the date of gift, neither a loss nor gain is realized, so there is no need to calculate basis.
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