26 U.S.C. § 1015 — Basis of property acquired by gifts and

Page 2256 TITLE 26—INTERNAL REVENUE CODE § 1015 § 1015. Basis of property acquired by gifts and transfers in trust (a) Gifts after December 31, 1920 If the property was acquired by gift after De- cember 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis (adjusted for the period before the date of the gift as provided in section 1016) is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value. If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cog- nizant thereof. If the Secretary finds it impos- sible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary as of the date or approximate date at which, according to the best information that the Secretary is able to obtain, such prop- erty was acquired by such donor or last pre- ceding owner. (b) Transfer in trust after December 31, 1920 If the property was acquired after December 31, 1920, by a transfer in trust (other than by a transfer in trust by a gift, bequest, or devise), the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recog- nized to the grantor on such transfer under the law applicable to the year in which the transfer was made. (c) Gift or transfer in trust before January 1, 1921 If the property was acquired by gift or transfer in trust on or before December 31, 1920, the basis shall be the fair market value of such property at the time of such acquisition. (d) Increased basis for gift tax paid (1) In general If— (A) the property is acquired by gift on or after September 2, 1958, the basis shall be the basis determined under subsection (a), in- creased (but not above the fair market value of the property at the time of the gift) by the amount of gift tax paid with respect to such gift, or (B) the property was acquired by gift be- fore September 2, 1958, and has not been sold, exchanged, or otherwise disposed of before such date, the basis of the property shall be increased on such date by the amount of gift tax paid with respect to such gift, but such increase shall not exceed an amount equal to the amount by which the fair market value of the property at the time of the gift ex- ceeded the basis of the property in the hands of the donor at the time of the gift. (2) Amount of tax paid with respect to gift For purposes of paragraph (1), the amount of gift tax paid with respect to any gift is an amount which bears the same ratio to the amount of gift tax paid under chapter 12 with respect to all gifts made by the donor for the calendar year (or preceding calendar period) in which such gift is made as the amount of such gift bears to the taxable gifts (as defined in section 2503(a) but computed without the de- duction allowed by section 2521) made by the donor during such calendar year or period. For purposes of the preceding sentence, the amount of any gift shall be the amount in- cluded with respect to such gift in deter- mining (for the purposes of section 2503(a)) the total amount of gifts made during the cal- endar year or period, reduced by the amount of any deduction allowed with respect to such gift under section 2522 (relating to charitable deduction) or under section 2523 (relating to marital deduction). (3) Gifts treated as made one-half by each spouse For purposes of paragraph (1), where the donor and his spouse elected, under section 2513 to have the gift considered as made one- half by each, the amount of gift tax paid with respect to such gift under chapter 12 shall be the sum of the amounts of tax paid with re- spect to each half of such gift (computed in the manner provided in paragraph (2)). (4) Treatment as adjustment to basis For purposes of section 1016(b), an increase in basis under paragraph (1) shall be treated as an adjustment under section 1016(a). (5) Application to gifts before 1955 With respect to any property acquired by gift before 1955, references in this subsection to any provision of this title shall be deemed to refer to the corresponding provision of the Internal Revenue Code of 1939 or prior revenue laws which was effective for the year in which such gift was made. (6) Special rule for gifts made after December 31, 1976 (A) In general In the case of any gift made after Decem- ber 31, 1976, the increase in basis provided by this subsection with 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. (B) Net appreciation For purposes of paragraph (1), the net ap- preciation in value of any gift is the amount by which the fair market value of the gift exceeds the donor’s adjusted basis imme- diately before the gift. (e) Gifts between spouses In the case of any property acquired by gift in a transfer described in section 1041(a), the basis of such property in the hands of the transferee shall be determined under section 1041(b)(2) and not this section. (Aug. 16, 1954, ch. 736, 68A Stat. 298; Pub. L. 85–866, title I, § 43(a), Sept. 2, 1958, 72 Stat. 1640; Page 2257 TITLE 26—INTERNAL REVENUE CODE § 1016 Pub. L. 91–614, title I, § 102(d)(1), Dec. 31, 1970, 84 Stat. 1841; Pub. L. 94–455, title XIX, §§ 1901(a)(122), 1906(b) (13)(A), title XX, § 2005(c), Oct. 4, 1976, 90 Stat. 1784, 1834, 1877; Pub. L. 97–34, title IV, § 442(d)(1), Aug. 13, 1981, 95 Stat. 322; Pub. L. 98–369, div. A, title IV, § 421(b)(5), July 18, 1984, 98 Stat. 794.) Editorial Notes REFERENCES IN TEXT Section 2521, referred to in subsec. (d)(2), was repealed by Pub. L. 94–455, title XX, § 2001(b)(3), Oct. 4, 1976, 90 Stat. 1849. The Internal Revenue Code of 1939, referred to in sub- sec. (d)(5), is act Feb. 10, 1939, ch. 2, 53 Stat. 1. Prior to the enactment of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], the 1939 Code was classified to former Title 26, Internal Revenue Code. For table of comparisons of the 1939 Code to the 1986 Code, see Table I preceding section 1 of this title. Editorial Notes AMENDMENTS 1984—Subsec. (e). Pub. L. 98–369 added subsec. (e). 1981—Subsec. (d)(2). Pub. L. 97–34 substituted ‘‘cal- endar year (or preceding calendar period)’’ for ‘‘cal- endar quarter (or calendar year if the gift was made be- fore January 1, 1971)’’ and ‘‘calendar year or period’’ for ‘‘calendar quarter or year’’ in two places. 1976—Subsec. (a). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’ in four places. Subsec. (d)(1)(A), (B). Pub. L. 94–455, § 1901(a)(122), sub- stituted ‘‘September 2, 1958’’ for ‘‘the date of enactment of the Technical Amendments Act of 1958’’. Subsec. (d)(6). Pub. L. 94–455, § 2005(c), added par. (6). 1970—Subsec. (d)(2). Pub. L. 91–614 substituted ‘‘cal- endar quarter (or calendar year if the gift was made be- fore January 1, 1971)’’ for ‘‘calendar year’’ the first place it appears and ‘‘calendar quarter or year’’ for ‘‘calendar year’’ every other place it appears. 1958—Subsec. (d). Pub. L. 85–866 added subsec. (d). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–369 applicable to transfers after July 18, 1984, in taxable years ending after such date, subject to election to have amendment apply to transfers after 1983 or to transfers pursuant to existing decrees, see section 421(d) of Pub. L. 98–369, set out as an Effective Date note under section 1041 of this title. EFFECTIVE DATE OF 1981 AMENDMENT Amendment by Pub. L. 97–34 applicable with respect to gifts made after Dec. 31, 1981, see section 442(e) of Pub. L. 97–34, set out as a note under section 2501 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(a)(122) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. Pub. L. 94–455, title XX, § 2005(f), Oct. 4, 1976, 90 Stat. 1878, as amended by Pub. L. 95–600, title V, § 515(6), Nov. 6, 1978, 92 Stat. 2884, provided that: ‘‘(1) Except as provided in paragraph (2), the amend- ments made by this section [enacting sections 1023, 1040, 6039A, and 6694 of this title, amending sections 691, 1016, and 1246 of this title, and renumbering former sec- tion 1023 as 1024] shall apply in respect of decedents dying after December 31, 1979. ‘‘(2) The amendment made by subsection (c) [amend- ing this section] shall apply to gifts made after Decem- ber 31, 1976.’’ EFFECTIVE DATE OF 1970 AMENDMENT Amendment by Pub. L. 91–614 applicable with respect to gifts made after Dec. 31, 1970, see section 102(e) of Pub. L. 91–614, set out as a note under section 2501 of this title. EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title. § 1016. Adjustments to basis (a) General rule Proper adjustment in respect of the property shall in all cases be made— (1) for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made— (A) for— (i) taxes or other carrying charges de- scribed in section 266; or (ii) expenditures described in section 173 (relating to circulation expenditures), for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or (B) for mortality, expense, or other reason- able charges incurred under an annuity or life insurance contract; (2) in respect of any period since February 28, 1913, for exhaustion, wear and tear, obsoles- cence, amortization, and depletion, to the ex- tent of the amount— (A) allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and (B) resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayer’s taxes under this sub- title (other than chapter 2, relating to tax on self-employment income), or prior in- come, war-profits, or excess-profits tax laws, but not less than the amount allowable under this subtitle or prior income tax laws. Where no method has been adopted under section 167 (relating to depreciation deduction), the amount allowable shall be determined under the straight line method. Subparagraph (B) of this paragraph shall not apply in respect of any period since February 28, 1913, and before January 1, 1952, unless an election has been made under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976). Where for any taxable year before the taxable year 1932 the depletion allowance was based on discovery value or a percentage of in- come, then the adjustment for depletion for such year shall be based on the depletion which would have been allowable for such year if computed without reference to discovery value or a percentage of income; (3) in respect of any period— (A) before March 1, 1913, (B) since February 28, 1913, during which such property was held by a person or an or- ganization not subject to income taxation under this chapter or prior income tax laws, (C) since February 28, 1913, and before Jan- uary 1, 1958, during which such property was