Capital gains incurred from gifts are assessed based on which value?

Capital gains for gifted assets are assessed based on the market value at the time of the gift due to the principle of "basis" in taxation. When an asset is gifted, the recipient generally takes on the donor's basis for calculating future capital gains, but if the asset is appreciated in value at the time of the gift, it is the fair market value that is applied for determining any potential gain or loss upon disposal.

This approach ensures that the tax implications reflect the current economic value of the asset at the time it changes hands, rather than the original price paid or the proceeds received upon sale. Therefore, the market value at the time of the gift establishes a clear point of reference for calculating gains if and when the new owner decides to sell the asset.

Understanding this principle is essential in tax practices, as it affects the reporting and tax liability for the recipient of the gifted asset.