Now that the holidays are upon us and the gifts will start to fly, please remember this very important tax tip.

When a gift is made, the Donee (recipient) assumes the cost basis of the Donor (giver). Consequently, if the Donor is gifting property that has appreciated considerably, the Donee also assumes, and will have to pay tax on, the large capital gain that the Donor would have had to pay, if he or she had sold that property themself.

Absent practical considerations, it’s almost always better to gift assets that have appreciated as little as possible, such as cash, so as not to burden the Donee with a big tax liability, which in effect, lessens the value of the gift.

Since capital gains are wiped out when someone dies, it is far better (i.e. less costly) to hold onto appreciated assets, and gift property with no built-in capital gain.


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