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Series 7 practice questioneasyTax Implications — Gift and Estate Tax

When stock is received as a gift, the recipient's cost basis for determining a gain is generally:

  1. AThe fair market value on the date of the gift
  2. BThe donor's original cost basis (carryover basis)✓ Correct answer
  3. CZero, since no money was paid
  4. DThe par value of the stock
Explanation

Why B — The donor's original cost basis (carryover basis)

For gifted securities, the recipient's cost basis for determining a gain is the donor's original cost basis, known as the carryover basis. If the fair market value at the time of the gift is lower than the donor's basis, dual basis rules may apply — the FMV is used for determining losses. The holding period of the donor also carries over for determining long-term vs. short-term treatment.

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