Question

All of the following statements regarding the basis and holding period of property received as a gift are true except?

a. the holding period for property received as a gift is always long term.
b. if the value appreciated in the hands of the donor, then the donor's cost basis carries over to the donee.
c. if the value declined in the hands of the donor, then the donee has a double basis.
d. if the value declined in the hands of the donor and the donee later sells at a price that is between the donor's basis and the fair market value on the date of the gift, then the donee has no taxable gain or loss.

Answer 1

The correct answer is c: the donee does not have a double basis when the value declined in the hands of the donor.

Step-by-step explanation:

The correct answer to this question is c. If the value declined in the hands of the donor, then the donee has a double basis.

A basis is the value assigned to an asset for tax purposes. When property is received as a gift, the recipient's basis in the property depends on the fair market value of the property on the date it was received. If the value of the property declined in the hands of the donor, then the donee's basis would be the fair market value on the date of the gift.

For example, if a donor purchased a stock for $1,000 and the value declined to $800 at the time of the gift, the donee's basis would be $800. If the donee later sells the stock for $900, there would be a taxable gain of $100.