1015—Basis for Property Received as a Gift
1. a.    Code:  1015(a), (d)(1), (2), (4), (6)
b.    Regs:  1.1015-1(a), (c), (d); 1.1015-4
2.    Ascher says that usually basis equal cost, but in gifts cost equal zero so you have to have  1015.
3.    1015 states that a tp who receives a gift acquires a transferred or “carryover” basis in the gift property.  The donee’s basis is generally the donor’s basis in the property at the time of the transfer.  See 7701(a)(43).
a.    This does result in the non-taxation of appreciated gift property on the part of the donor.  That taxable realization is incurred when the donee ultimately disposes of the property in a recognizable fashion.
i.    this is not necessarily all that bad, in a family, one family member can transfer low basis high appreciated property to a family member in a much lower tax bracket; however, Congress has chosen not to allow a similar transfer of tax losses; p. 134
b.    therefore, the rule for computation the basis of property received by gift is dependent on whether the donee’s subsequent disposition of the property results in gain or in loss or in neither gain nor loss.
c.    1015(d); if the FMV of the gift is > or = to the donor’s A/B, the donee’s B will be the donor’s A/B increased (but not above the property’s FMV) by the gift tax paid, which is attributable to the net appreciation in the property.  If the value of the property at the time of the gift is < the donor’s A/B (meaning an inherent loss) then the donee will have two Bs in the property:
i.    a B for determining gain and
1.    this equals the donor’s A/B
ii.    a B for determining a loss
1.    this is the FMV of the property at the time of the gift
d.    if the donee sells the property for more than the gain B, the excess is a realized gain; if the property is sold for less than the loss B, the excess is a realized loss;  see p. 134 bottom for example
e.    important:  remember the adjustment for the amount of federal gift tax paid w/ re to the gift; the increase in the donee’s B for gift tax paid is limited to the portion of the gift tax attributable to the net appreciation in value of the gift property—the amount by which the FMB of the property at the time of the gift exceeds the donor’s b; see  1015(d);  see p. 136 for example
4.    note:  1015(d)(6):  Special rule for gifts made after December 31, 1976—
a.    in the case of any gift made after 12/31/76, the increase in basis provided by this subsection w/ respect to any gift for the gift tax paid under chapter 12 shall be an amount (not in excess of the amount of tax so paid) which bears the same ratio to the amount of tax so paid as—
i.    the net appreciation in value of the gift, bears to
ii.    the amount of the gift