5.12 Holding Period: Gifts, Inheritances, and Other Property

Gift property.

If, in figuring a gain or loss, your basis for the property under 5.17 is the same as the donor’s basis, you add the donor’s holding period to the period you held the property. If you sell the property at a loss using as your basis the fair market value at the date of the gift (5.17), your holding period begins on the day after the date of the gift.

Inherited property.

The law gives an automatic holding period of more than one year for property inherited from someone who died before or after 2010. Report the transaction on Line 3 of Form 8949 and enter “INHERITED” in column (c) as the date of acquisition. The same rule applies for property inherited from someone who died in 2010 unless the executor elected on Form 8939 to apply modified carryover basis rules (5.17).

Where property is purchased by the executor or trustee and distributed to you, your holding period begins the day after the date on which the property was purchased.

Filing Tip

Selling Inherited Property

When you sell property that you inherited from someone who died before or after 2010 (and usually in 2010 as well, see 5.17), report the sale as long-term gain or loss on Form 8949 and Schedule D even if you actually held the property for less than one year. The law automatically treats inherited property as if it were held for more than one year.

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Partnership property.

When you receive property as a distribution in kind from your partnership, the period your partnership held the property is added to your holding period. But there is no adding on of holding periods if the partnership property distributed was inventory and was sold by you within five years of distribution.

Involuntary conversions.

When you have an involuntary conversion and elect to defer tax on gain, the holding period for the qualified replacement property generally includes the period you held the converted property. A new holding period begins for new property if you do not make an election to defer tax.