Cost Basis Methods & Gifted Property
FIFO by default, specific identification to control gains; gifts carry over the donor's basis.
What is Cost Basis Methods & Gifted Property?
Unless the investor specifies otherwise, sales are treated as first in, first out (FIFO). Specific share identification lets an investor choose high-basis lots to minimize gains; mutual funds may use average cost. Gifted property takes the donor's basis (carryover basis) for computing a gain, and the donor's holding period carries over. For a loss, the basis is the lower of the donor's basis or the value on the date of the gift. Inherited property instead receives a step-up.
Cost Basis Methods & Gifted Property: a worked example
Stock bought for $10,000, gifted when worth $50,000, later sold for $60,000: the recipient's gain is $50,000.
More terms in Clients, Strategy & Tax
Sole Proprietorship
A business owned by one person with no legal separation from the owner.
General Partnership
Co-owners share management and unlimited liability; income passes through.
Limited Liability Company (LLC)
Limited liability for owners with pass-through taxation by default.
C Corporation
A separate taxpayer - profits taxed at the corporate level, then again as dividends.
S Corporation
A corporation that passes income through to shareholders, avoiding double tax.
Trust & Estate Accounts
Accounts run by a fiduciary - a trustee or an executor - under a governing document.
Foundations & Charities
Tax-exempt organizations investing for a mission, often in perpetuity.
Client Profile & Data Gathering
The financial and nonfinancial facts every recommendation must rest on.