I.R.C. Section 1014(e) and Gifted Property Reconveyed in Trust

The taxpayer’s method of property acquisition is significant in determining the proper income tax or adjusted basis in the property. Distinct adjusted basis rules apply to the transferee of property acquired by purchase, gift, and inheritance. A buyer who purchases property for cash receives an adjusted basis in the property acquired equal to its cost. For property acquired by gift, the general rule is that the donee’s adjusted basis equals the donor’s adjusted basis immediately prior to the transfer.

A third income tax basis regime applies to the taxpayer who happens to acquire property by inheritance upon the death of a decedent.