Question

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

a. True
b. False

Answer 1

The amount of the loss basis of a gift will differ from the amount of the gain basis only if the adjusted basis of the property exceeds the property's fair market value.

Step-by-step explanation:

The statement is true. The loss basis of a gift will differ from the gain basis only if the adjusted basis of the property exceeds the property's fair market value at the date of the gift.

When a gift is made, the recipient's basis in the property is generally the same as the donor's adjusted basis. However, if the property's fair market value is lower than the donor's adjusted basis, the recipient's basis will be the property's fair market value rather than the donor's adjusted basis. This difference forms the loss basis.

For example, if a donor gifts a property with an adjusted basis of $100,000 but its fair market value at the time of the gift is only $80,000, the recipient's basis in the property would be $80,000. If the recipient later sells the property for $85,000, they would have a loss of $15,000 ($85,000 - $80,000).