How do you calculate basis for bullion gifted during the giver's lifetime versus at death?
Executive summary
When you receive bullion as a lifetime gift, your cost basis generally “carries over” from the donor — you take the donor’s original purchase price (adjusted for documented costs) and the donor’s holding period for future capital-gains purposes [1] [2]. When bullion is inherited at the donor’s death, the beneficiary receives a stepped-up (or down) basis equal to the fair market value on the date of death, which becomes the new cost basis (p1_s11; [5] discusses date‑of‑death FMV as the basis).
1. How the IRS treats gifted bullion during the giver’s lifetime: donor basis carries over
The general rule for gifts is that the recipient’s basis is the donor’s adjusted basis — meaning if your aunt bought a gold coin for $400 and gave it to you while alive, your basis for gain is typically that same $400 (plus any documented costs), not the coin’s market value on the gift date [1] [2]. Practical consequence: when you later sell, capital gain is sale price minus that carried‑over basis; bullion is treated as a collectible for tax rate purposes and gains must be reported [3] [4]. Sources advise keeping the giver’s purchase records because the IRS may require proof of original basis if audited [2] [5].
2. How basis works for bullion received at death: stepped‑up (or down) to date‑of‑death value
If you inherit bullion, the cost basis is generally the fair market value on the decedent’s date of death (or alternate valuation date, when applicable) — a fresh basis that can eliminate unrealized capital gain that accrued during the decedent’s lifetime [5]. That stepped‑up basis becomes the starting point for your future gain or loss when you dispose of the metals [5]. Several commentators emphasize labeling inherited versus gifted items and keeping appraisals to match sales to the correct basis [2].
3. Why the difference matters: income‑tax hit versus estate‑tax tradeoffs
The practical tradeoff is clear: lifetime gifts preserve the donor’s basis in the recipient’s hands (potentially creating larger future capital gains), while death transfers reset basis to current value (possibly eliminating gain) [2] [5]. Estate and gift tax rules add another layer: sizeable lifetime gifts may reduce an estate’s future value for estate tax purposes but can create “carryover basis” exposure for recipients; recent commentary warns that after changes to exemption rules, carryover‑basis issues are central to gift planning [6].
4. Document everything: provenance, purchase price, FMV and appraisals
Every authoritative source stresses documentation. For gifted bullion you need the donor’s purchase records and proof of associated costs (dealer premiums, storage) to establish adjusted basis; for inherited bullion you should preserve the appraisal or inventory showing date‑of‑death fair market value [2] [5] [3]. Without documentation, “you may not get credit for a basis you can’t prove,” according to reporting [5].
5. Practical examples and tax filing implications
Example used consistently in sources: aunt paid $400, later gifts coin worth $2,400 — recipient’s basis remains $400 (adjusted for costs) so taxable gain equals sale price minus $400 [2]. If instead the coin is inherited, the basis is the date‑of‑death FMV and the beneficiary’s gain (if any) may be much smaller [5]. Recipients generally do not owe tax at the moment of receiving the gift or inheritance; tax arises on subsequent sale — and sales of precious metals must be reported as capital gains [4] [3].
6. Areas where available sources do not mention specific rules or where advice differs
Available sources do not mention detailed special‑case rules such as basis adjustments for gifts split between multiple recipients, anti‑avoidance provisions beyond the general carryover/step‑up distinction, or state‑level variations on collectibles taxation; nor do the provided excerpts include precise Form 709 filing mechanics for gifts of bullion beyond noting filing thresholds and exclusions [1] [7] [8]. Some consumer guides emphasize the collectible tax rate for metals without reproducing the IRS code language — readers should consult a tax professional or IRS instructions for complex estates [3] [4].
Bottom line: for lifetime gifts you inherit the donor’s adjusted basis and holding period; for inherited bullion you generally receive a date‑of‑death fair‑market‑value basis. Keep the donor’s purchase records and date‑of‑death appraisals to substantiate whichever basis applies when you later sell [1] [2] [5] [3].