If the value is 15 percent or more a basis must be

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value of the old stock at that time, the basis of such rights is zero unless the taxpayer elects to allocate. If the value is 15 percent or more, a basis must be allocated to the rights, but only if the rights are exercised or sold. The stock basis is allocated between the stock and the rights according to the relative fair market value at their distribution date. If nontaxable rights are sold, the holding period runs from the date the original stock was acquired. If the rights are exercised, the new stock’s holding period starts on the date of exercise. Basis: Taxable Stock Rights In the case of taxable stock rights, the amount of income is the fair market value of the rights at the date of 10. distribution. This fair market value is then the basis of the rights and the holding period of the rights begins on the date of distribution. If the rights are exercised, the basis of the new shares is the subscription price plus the basis of the rights and the holding period of the new shares begins on the date of exercise. The basis and holding period of the old stock remain the same. Basis: Gift Property A taxpayer’s original basis for property acquired by gift is the same as the property’s adjusted basis in 11. the hands of the donor or the last preceding owner by whom it was not acquired by gift. If, however, the property’s fair market value at the time of the gift is less than the adjusted basis to the donor, then the basis for determining loss is the fair market value at the time of the gift. A selling price of gift property between the basis for determining gain and a lesser fair market value will result in neither gain nor loss. Basis: Pre-1977 and Post-1976 Gift Property For gifts made prior to 1977, the full amount of the gift tax is added to the donor’s adjusted basis, but the 12. basis may not be increased above the fair market value at the date of the gift. For gifts made after December 31, 1976, the basis is increased by the portion of the gift tax that is attributable to the net appreciation in value of the gift. Net appreciation in value is defined as the amount by which the fair market value of the gift exceeds the donor’s adjusted basis immediately before the gift. The amount of basis increase is as follows:
166CCH Federal Taxation—Comprehensive TopicsChapter 10 ©2010 CCH. All Rights Reserved.Net appreciationTaxable amount of gift×Gift tax paidThis adjustment plus the donor’s adjusted basis becomes the basis for asset write-offs and for gain or loss determination. Basis: Inherited Property The general rule is that the basis of property acquired from a decedent is the fair market value of the 13. property at the date of the decedent’s death. Basis: Inherited Property Alternate Valuation If the executor elects for estate tax purposes to value the decedent’s gross estate as of six months after 14. death, the basis of the property is the fair market value at that time. If the property is distributed before the alternate valuation date, the basis is the fair market value at the date of distribution or other disposition. For

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