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ESTATE AND GIFT TAX CONSIDERATIONSthe child for an amount equal to its cost ($50,000). Because the value of the propertyat the time of the transfer exceeded the consideration received, part of thetransfer constitutes a taxable gift. The value of the taxable gift would be$200,000⎯namely, the amount of the fair market value of the property ($250,000)less the amount of consideration received ($50,000).(j) Basis of Gifted PropertyThe basis of gift property in the hands of the recipient is generally the transferor’sbasis plus the gift tax paid as a result of the transfer. 42 To account for thetransferor’s investment in property, the federal income tax law provides that thebasis in gifted property to a transferee (or donee) is the transferor’s basis. This isknown as a transferred or carryover basis. The basis of the property in the hands ofthe gift giver, the transferor, is transferred with the gift, and becomes the basis ofthe gift/property in the hands of the recipient, the transferee. As noted, theamount of the transferred basis in gifted property is increased by the amount ofgift tax paid by the transferor as a result of the gift.There is an important limitation on carryover of the transferor’s basis. Thetransferee’s basis in gifted property is the same as the basis in the hands of thetransferor, except that the basis cannot exceed the fair market value of the propertyat the time of the gift. What this means is that tax wealth can be transferred,but not tax losses. Should loss property (property in which the basis exceeds thefair market value of the asset) be transferred by gift, the transferee will not beable to recognize the transferor’s loss on the property.An example of the basis rule is a bargain sale of property, which is a sale forless than fair market value (insufficient consideration). It is also known as a partgift/part sale transaction, as the intention of the transferor is to make a gift of apart of the property. 43Using the previous example, suppose the transferor wishes to sell his$250,000 investment property, which he purchased years ago for $50,000, for lessthan its value. The intent is to make a gift of part of the appreciation.If the transferor sold the property for $40,000, less than the basis in the property,no loss would be allowed on the sale. The amount of the taxable gift wouldbe $210,000, the difference between the fair market value of the gift ($250,000)and the amount of consideration received ($40,000).If the transferor sold the property for $60,000, there would be a gain of$10,000 on the transaction. The amount of the taxable gift would be $190,000, thedifference between the fair market value of the gift ($250,000) and the amount ofconsideration received ($60,000).On the $40,000 sale, the transferee’s basis would be the gift tax plus thegreater of the amount paid by the transferee ($40,000) or the transferor’s basis($50,000). In this case, the transferee assumes the transferor’s basis of $50,000.On the $60,000 sale, the transferee’s basis would be the gift tax plus thegreater of the amount paid by the transferee ($60,000) or the transferor’s basis($50,000). In this case, the transferee takes his or her own cost basis of $60,000.42 IRC § 1015(d).43 See § 9.19. 230