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THE UNITED STATES TAX SYSTEM: AN OVERVIEWProperty that is acquired from a decedent, however, has a stepped-up ratherthan a regular (cost) basis. 44 The person acquiring property from a decedent hasa basis equal to the fair market value of the property at the date of the decedent’sdeath (or, if elected, under the alternate valuation date 45 ). Any gain in the valueof the decedent’s asset during the decedent’s lifetime will be deemed a nontaxablepart of the recipient taxpayer’s investment in the property when it is sold.Property that is acquired by gift has a carryover rather than a cost basis. 46This means that the person who receives a gift of property has the same basis inthe property as that of the donor of the property; the basis is carried over to thenew owner of the property. Any gain in value of the gifted property in the handsof the donor will be taxable to the recipient when it is sold. The recipient can,however, take advantage of the cost basis of the donor, rather than having a zerocost basis as a result of the gift.(b) Adjusted BasisJust as gross income may be adjusted by business expense deductions to reflectthe true economic gain of the taxpayer, so too may basis be adjusted to reflecttrue economic gain (or loss) in the disposition of property.In determining gain or loss, the federal tax law provides that basis in propertybe adjusted. 47 Generally, basis is adjusted 48 for the following forms of taxrecognizedeconomic activity:• Expenditures• Receipts• Losses• Other items properly chargeable to capital account (but no adjustments forcertain taxes 49 or other carrying charges and circulation expenditures) 50Basis is also adjusted under the general rule for the following items to the extentthe allowable items resulted in a reduction of tax:• Exhaustion• Wear and tear• Obsolescence• Amortization• DepletionThe federal tax law provides for a number of other basis adjustments that are notrelevant to an overview of income taxation. 5144 IRC § 1014.45 IRC § 2032.46 IRC § 1015.47 IRC § 1011 provides that basis be adjusted as provided in IRC § 1016.48 IRC § 1016.49 IRC § 266 taxes.50 IRC § 173.51 IRC § 1016. 42