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Taxes for sellers · IRS Publication 551Selling a house you received as a gift: why the giver's basis matters

When parents deed a house to a child and the child later sells it, the tax depends on the basis the child received. Under IRS Publication 551, the basis of property received as a gift starts from the donor's adjusted basis just before the gift – what the donor paid plus improvements, minus any depreciation – not the value on the day of the gift. If the fair market value at the time of the gift was equal to or more than the donor's adjusted basis, the recipient's basis is the donor's adjusted basis, increased for a gift made after 1976 by the part of any gift tax paid that is due to the gift's net increase in value (in the IRS 2025 example, a $50,000 gift with a $20,000 basis and $6,220 of gift tax gives a basis of $26,033). If the value at the time of the gift was less than the donor's basis, there are two bases: the donor's adjusted basis for figuring a gain, and the value at the time of the gift for figuring a loss – and a sale price between the two produces neither gain nor loss. Either way, the recipient adjusts the basis for improvements and other changes while they own the home. This is the key difference from inheriting: an inherited home generally gets a basis equal to its value at the owner's death, so a house given during life can carry a much larger taxable gain than the same house inherited.

The basis of a gifted home (Pub. 551)

  1. Value at or above the giver's basis

    Your basis = the giver's adjusted basis, plus part of any gift tax paid on the increase in value.

  2. Value below the giver's basis

    Gain is figured from the giver's basis; loss from the value at the time of the gift.

  3. The in-between zone

    A sale price between those two amounts: no gain and no loss.

  4. While you own it

    Add improvements and other required adjustments.

Gift vs inheritance

  • Gift: the giver's basis carries over – years of appreciation can become the recipient's taxable gain.
  • Inheritance: basis generally resets to the value at death (see the inherited home guide).
  • The giver's records of the purchase price and improvements are what set the recipient's basis.

What the TC can do

  • When a seller says the house was a gift, suggest they find the giver's purchase and improvement records early.
  • Send the seller the final settlement statement for their tax preparer.
  • Note any gift tax return filed for the transfer – it can change the basis.

Questions sellers ask

What is my basis in a house my parents gave me?

Generally your parents' adjusted basis – what they paid plus improvements, minus depreciation – increased by part of any gift tax paid; it does not reset to the value on the day of the gift (IRS Publication 551).

Is it better to inherit a house or receive it as a gift?

For basis, an inherited home generally gets a basis equal to its value at death, while a gift keeps the giver's basis, so a gift can leave a larger taxable gain on sale. Ask a tax professional about your situation.

What if the house was worth less than my parents' basis when they gave it to me?

You use their basis to figure a gain and the value at the time of the gift to figure a loss; a sale price between the two gives neither gain nor loss.

Related guides

In ClosingCode the Closing Disclosure / settlement statement is a standard document on every deal – easy to send the seller when their tax preparer asks.

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Source: IRS Publication 551, Basis of Assets (Rev. December 2025), Property Received as a Gift, irs.gov/pub/irs-pdf/p551.pdf, read October 26, 2026.

General information, not tax advice. Sellers should work out their basis with a tax professional. ClosingCode is software; it is not a tax preparer or CPA. This guide is not a substitute for the advice or services of an attorney.