Don’t include the IRS on your gift list

Posted on Dec 27, 2016

 Image courtesy of holohololand at FreeDigitalPhotos.net

Image courtesy of holohololand at FreeDigitalPhotos.net

Suppose a relative gives you an expensive painting. Several years later, your relative dies and you decide to sell the painting. Your accountant says you’ll owe capital gain tax on the sale, and asks for your basis in order to reduce the amount on which you’ll pay tax. What’s your answer?

When you sell property received as a gift, the general rule is that your basis is the donor’s cost basis. If you sell at a loss, your basis is the lower of the donor’s basis or the fair market value on the date you received the gift. These numbers are adjusted in some cases. But without cost records, you have no way of proving the donor’s basis and no way of saving yourself tax dollars.

If asking for records of the cost when you receive a gift seems inappropriate, explain why you want to know to help make the conversation less awkward. No one likes to pay unnecessary taxes. Having the same conversation about the cost of valuable gifts you received in prior-years is also worthwhile.

If you’re the gift-giver, offer the additional gift of presenting the cost records to the recipient at the same time. Otherwise, you may end up giving an unintended gift to the IRS in the form of unnecessary taxes.

Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.

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