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SPECIAL GIFT SITUATIONSto the fair market value of the property be reduced by the ordinary income or capitalgain element in the property.)There must be allocated to the contribution portion of the property thatelement of the adjusted basis of the entire property that bears the same ratio tothe total adjusted basis as the fair market value of the contributed portion of theproperty bears to the fair market value of the entire property. Further, forthese purposes, there must be allocated to the contributed portion of the propertythe amount of gain that is not recognized on the bargain sale, but thatwould have been recognized if the contributed portion of the property hadbeen sold by the donor at its fair market value at the time of its contribution tothe charitable organization. 444The amount of long-term capital gain or ordinary income that would havebeen recognized if the contributed portion of the property had been sold by thedonor at its fair market value at the time of its contribution is the amount thatbears (1) the same ratio to the ordinary income (or long-term capital gain) thatwould have been recognized if the entire property had been sold by the donor atits fair market value at the time of its contribution (2) as the fair market value ofthe contributed portion of the property at that time bears to the fair market valueof the entire property at that time. 445 The fair market value of the contributedportion of the property is the amount determined by subtracting from the fairmarket value of the entire property the amount realized on the sale. 446The donee must use the adjusted basis of the contributed portion of theproperty in applying to the contributed portion of the property such rules of lawas 447 • Determining the adjusted basis of debt-financed property 448• Determining the basis of property acquired by gift 449• Determining capital gains and losses in the calculation of the net investmentincome of private foundations 450• Determining net short-term capital gain in calculating the tax on failure todistribute income imposed on private foundations 451The donee may not use the fair market value of the contributed portion of theproperty, at the time of the contribution, as the basis of the contributed portion. 452The contribution element arising from a bargain sale is subject to the percentagelimitations. 453 The gain generated as the consequence of a bargain saletransaction must be recognized in the year of the sale. 454444 IRC § 1011(b); Reg. § 1.1011-2(a)(1).445 Reg. § 1.170A-4(c)(3).446 Id.447 Reg. § 1.170A-4(c)(4).448 IRC § 514(a)(1). See § 3.5.449 IRC § 1015(a).450 IRC § 4940(c)(4).451 IRC § 4942(f)(2)(B).452 Reg. § 1.170A-4(c)(4), last sentence.453 See Chapter 7.454 Reg. § 1.1011-2(a)(2). See also Reg. § 1.1011-2(c), Example (2). 328