Basis of Gifted Shares
Carryover basis and the dual-basis rule.
When you receive shares as a gift, you generally take over the donor's adjusted basis, called carryover basis (IRC § 1015). A special dual-basis rule applies if the shares were worth less than the donor's basis on the date of the gift.
| Situation at the date of the gift | Basis for figuring a gain | Basis for figuring a loss |
|---|---|---|
| Value is equal to or more than donor's basis | Donor's adjusted basis | Donor's adjusted basis |
| Value is less than donor's basis | Donor's adjusted basis | Fair market value at the date of the gift |
Example 1: shares that went up
Your aunt bought shares for $4,000. They were worth $10,000 when she gave them to you. You sell for $11,000. Your basis is her $4,000, so your gain is $7,000. Because your basis is figured from her basis, her holding period is added to yours, so the gain is long-term if your combined holding period is over one year.
Example 2: the dual-basis rule
Donor's basis: $10,000. Value on the date of the gift: $8,000.
| You later sell for | Which basis applies | Result |
|---|---|---|
| $12,000 | Donor's basis, $10,000 | $2,000 gain |
| $6,000 | Value at gift, $8,000 | $2,000 loss |
| $9,000 | Gain basis gives a loss; loss basis gives a gain | No gain and no loss |
The rule stops a donor from passing an unrealized loss to someone else. Only the decline after the gift ($8,000 to $6,000) is deductible.
Gift tax adjustment
If the donor paid federal gift tax, part of that tax attributable to the appreciation may be added to your basis (Pub. 551). Ask the donor for their purchase records and any gift tax return (Form 709).
Is the broker's basis right?
When gifted shares are transferred, the broker generally carries over the donor's basis and may treat the shares under the gift rules. If the dual-basis rule applies, check the reported basis on your 1099-B and use the Form 8949 instructions to adjust it if needed.
Frequently asked questions
What if I don't know the donor's basis?
Ask the donor or their broker. If the facts truly can't be found, Pub. 551 says the basis is the fair market value at the time the donor acquired the property, if that can be determined.
Is a gift from my spouse different?
Transfers between spouses (and to a former spouse incident to divorce) take carryover basis under IRC § 1041, and the dual-basis loss rule does not apply.
Sources
Last reviewed: November 2026