section 1014 (b) (9) shall be an amount which bears the same relation to the total of all deductions (described in paragraph (a) of this section) allowed in respect of the property as the value of the property included in the decedent's gross estate bears to the value of the entire property. (2) The application of this paragraph may be illustrated by the following examples: Example (1). The decedent creates a trust to pay the income to A for life, remainder to B or his estate. The property transferred in trust consists of an apartment building with a basis of $50,000 at the time of the transfer. The decedent dies 2 years after the transfer is made and the gift is held to have been made in contemplation of death. Depreciation on the property was allowed in the amount of $1,000 annually. At the time of the decedent's death the value of the property is $58,000. The uniform basis of the property in the hands of the trustee, the life tenant, and the remainderman, immediately after the decedent's death Uniform basis prior to decedent's death... plus is $56,000 ($58,000, fair market value of the property immediately after the decedent's death, reduced by $2,000, deductions for depreciation allowed prior to the decedent's death). Example (2). The decedent creates a trust to pay the income to A for life, remainder to B or his estate. The trust instrument provides that if the decedent should survive A, the income shall be paid to the decedent for life. The decedent predeceases A and the present value of the remainder interest is included in the decedent's gross estate for estate tax purposes. The property transferred consists of an apartment building with a basis of $110,000 at the time of the transfer. Following the creation of the trust and during the balance of the decedent's life, deductions for depreciation were allowed on the property in the amount of $10,000. At the time of decedent's death the value of the entire property is $150,000, and the value of the remainder interest is $100,000. Accordingly, the uniform basis of the property in the hands of the trustee, the life tenant, and the remainderman, as adiated under section 1014 (b) (9), is $126,666, compted as follows: Increase in uniform basis-before reduction (determined by the following formula) $100,000 33, 333 Deductions allowed prior to decedent's death-taken into account under section 1014 (b) (9) (determined by the following formula) –– Prior deductions taken into account (to be determined) $100,000 (value of property included $10,000 (total deductions allowed prior to decedent's death) $150,000 (value of entire property) 133, 333 6,667 Uniform basis under section 1014.. 126, 666 [T.D. 6500, 25 F.R. 11910, Nov. 26, 1960, as amended by T.D. 6712, 29 F.R. 3656, Mar. 24, 1964] § 1.1014-7 Example applying rules of §§ 1.1014-4 through 1.1014–6 to case involving multiple interests. (a) On January 1, 1950, the decedent creates a trust to pay the income to A for life, remainder to B or his estate. The trust instrument provides that if the decedent should survive A, the income shall be paid to the decedent for life. The decedent, who died on January 1, 1955, predeceases A, so that, due to the operation of the estate tax, only the present value of the remainder interest is included in the decedent's gross estate. The trust consists of an apartment building with a basis of $30,000 at the time of transfer. Under the trust instrument the trustee is required to maintain a reserve for depreciation. During the decedent's lifetime depreciation is allowed in the amount of $800 annually. At the time of the decedent's death the value of the apartment building is $45,000. A, the life tenant, is 43 years of age at the time of the decedent's death. Immediately after the decedent's death, the uniform basis of the entire property under section 1014 (a) is $32,027; A's basis for the life interest is $15,553; and B's basis for the remainder interest is $16,474, computed as follows: Step 1. Uniform basis (adjusted) immediately prior to decedent's death: $30,000 less Depreciation allowed under section 1016 before decedent's death ($800×5) - 4,000 26,000 Step 2. Value of property included in decedent's gross estate: 0.40180 (remainder factor, age 43) ×$45,000 (value of entire property). $18, 081 Step 3. Uniform basis of property under section 1014 (a), before reduction required by section 1014 (b) (9): Uniform basis (adjusted) prior to decedent's death.. Increase in uniform basis (determined by the following formula). $26,000 7,634 Increase in uniform basis (to be de- $18,081 (value of property included Step 4 Uniform basis reduced as required by section 1014 (b) (9) for deductions allowed prior to death: Uniform basis before reduction............. less $33, 634 --- 1,607 Deductions allowed prior to decedent's death-taken into account under section 32, 027 Step 5. A's basis for the life interest at the time of the decedent's death, determined under section 1015: 0.59820 (life factor, age 43) X$26,000--- Step 6. B's basis for the remainder interest, determined under section 1014 (a): $15, 553 (b) Assume the same facts as in paragraph (a) of this section. Assume further, that following the decedents' death depreciation is allowed in the amount of $1,000 annually. As of January 1, 1964, when A's age is 52, the adjusted uniform basis of the entire property is $23,027; A's basis for the life interest is $9,323; and B's basis for the remainder interest is $13,704, computed as follows: Step 7. Uniform basis (adjusted) as of January 1, 1964: Uniform basis determined under section 1014 (a), reduced as required by section Step 8. Allocable share of adjustment for depreciation allowable in the nine years since the decedent's death: A's interest 0.49587 (life factor, age 52) ×$7,200 ($800, depreciation attributable to uniform basis before increase under section 1014 (a), X9) – $3,570 B's interest 0.50413 (remainder factor, age 52) ×$7,200 ($800, depreciation attributable to uniform basis before increase under section 1014(a), X9)---- $3,630 plus $200 (annual depreciation attributable to increase in uniform basis under section 1014 (a)) ×9----- 1,800 5,430 Step 9. Tentative bases of A's and B's interests as of January 1, 1964 (before adjustment for depreciation). A's interest 0.49587 (life factor, age 52) ×$26,000 (adjusted uniform basis immediately before decedent's death). $12, 893 B's interest 0.50413 (remainder factor, age 52) ×$26,000 (adjusted uniform basis immediately before decedent's death). $18,107 plus Increase in uniform basis owing to inclusion of remainder in decedent's gross estate_-_ 6, 027 19, 134 § 1.1014-8 Bequest, devise, or inheritance of a remainder interest. (a) (1) Where property is transferred for life, with remainder in fee, and the remainderman dies before the life tenant, no adjustment is made to the uniform basis of the property on the death of the remainderman (see paragraph (a) of § 1.1014-4). However, the basis of the remainderman's heir, legatee, or devisee for the remainder interest is determined by adding to (or subtracting from) the part of the adjusted uniform basis assigned to the remainder interest (determined in accordance with the principles set forth in §§ 1.1014-4 through 1.1014-6) the difference between (i) The value of the remainder interest included in the remainderman's estate, and (ii) The basis of the remainder interest immediately prior to the remainderman's death. (2) The basis of any property distributed to the heir, legatee, or devisee upon termination of a trust (or legal life estate) or at any other time (unless in cluded in the gross income of the legatee or devisee) shall be determined by adding to (or subtracting from) the adjusted uniform basis of the property thus distributed the difference between (1) The value of the remainder interest in the property included in the remainderman's estate, and (ii) The basis of the remainder interest in the property immediately prior to the remainderman's death. (b) The provisions of paragraph (a) of this section are illustrated by the following examples: Example (1). Assume that, under the will of a decedent, property consisting of common stock with a value of $1,000 at the time of the decedent's death is transferred in trust, to pay the income to A for life, remainder to B or to B's estate. B predeceases A and bequeaths the remainder interest to C. Assume that B dies on January 1, 1956, and that the value of the stock originally transferred is $1,600 at B's death. A's age at that time is 37. The value of the remainder interest included in B's estate is $547 (0.34185, remainder factor age 37, X$1,600), and hence $547 is C's basis for the remainder interest immediately after B's death. Assume Example (3). Assume the same facts as in example (2), except that the property transferred is depreciable. Assume further that $100 of depreciation was allowed prior to B's death and that $50 of depreciation is allowed between the time of B's death and the termination of the trust. Upon A's death terminating the trust, C's basis for the property distributed to him is computed as follows: Uniform basis of the property, adjusted to date of termination of the trust: Uniform basis immediately after decedent's death---- $1,000 Depreciation allowed following decedent's death----- plus Value of remainder interest 150 $85.0 (c) The rules stated in paragraph (a) of this section do not apply where the basis of the remainder interest in the hands of the remainderman's transferee is determined by reference to its cost to such transferee. See also paragraph (a) of § 1.1014-4. Thus, if, in example (1) of paragraph (b) of this section B sold his remainder interest to C for $547 in cash, C's basis for the stock distributed to him upon the death of A terminating the trust is $547. § 1.1015 Statutory provisions; basis of property acquired by gifts and transfers in trust. SEC. 1015. Basis of property acquired by gifts and transfers in trust-(a) Gifts after December 31, 1920. If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis (adjusted for the period before the date of the gift as provided in section 1016) is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value. If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary or his delegate shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Secretary or his delegate finds it impossible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary or his delegate as of the date or approximate date at which, according to the best information that the Secretary or his delegate is able to obtain, such property was acquired by such donor or last preceding owner. (b) Transfer in trust after December 31, 1920. If the property was acquired after December 31, 1920, by a transfer in trust (other than by a transfer in trust by a gift, bequest, or devise), the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer under the law applicable to the year in which the transfer was made. (c) Gift or transfer in trust before January 1, 1921. If the property was acquired by gift or transfer in trust on or before December 31, 1920, the basis shall be the fair market value of such property at the time of such acquisition. (d) Increased basis for gift tax paid—(1) In general. If (A) The property is acquired by gift on or after the date of the enactment of the Technical Amendments Act of 1958, the basis shall be the basis determined under subsection (a), increased (but not above the fair market value of the property at the time of the gift) by the amount of gift tax paid with respect to such gift, or (B) The property was acquired by gift before the date of the enactment of the Technical Amendments Act of 1958 and has not been sold, exchanged, or otherwise disposed of before such date, the basis of the property shall be increased on such date by the amount of gift tax paid with respect to such gift, but such increase shall not exceed an amount equal to the amount by which the fair market value of the property at the time of the gift exceeded the basis of the property in the hands of the donor at the time of the gift. (2) Amount of tax paid with respect to gift. For purposes of paragraph (1), the amount of gift tax paid with respect to any gift is an amount which bears the same ratio to the amount of gift tax paid under chapter 12 with respect to all gifts made by the donor for the calendar year in which such gift is made as the amount of such gift bears to the taxable gifts (as defined in section 2503 (a) but computed without the deduction allowed by section 2521) made by the donor during such calendar year. For purposes of the preceding sentence, the amount of any gift shall be the amount included with respect to such gift in determining (for the purposes of section 2503(a)) the total amount of gifts made during the calendar year, reduced by the amount of any deduction allowed with respect to such gift under section 2522 (relating to charitable deduction) or under section 2523 (relating to marital deduction). (3) Gifts treated as made one-half by each spouse. For purposes of paragraph (1), where the donor and his spouse elected, under section 2513 to have the gift considered as made one-half by each, the amount of gift tax paid with respect to such gift under chapter 12 shall be the sum of the amounts of tax paid with respect to each half of such gift (computed in the manner provided in paragraph (2)). (4) Treatment as adjustment to basis. For purposes of section 1016(b), an increase in basis under paragraph (1) shall be treated as an adjustment under section 1016(a). (5) Application to gifts before 1955. With respect to any property acquired by gift before 1955, references in this subsection to any provision of this title shall be deemed to refer to the corresponding provision of the Internal Revenue Code of 1939 or prior revenue laws which was effective for the year in which such gift was made. [Sec. 1015(d) as added by sec. 43 (a), Technical Amendments Act 1958 (Public Law 85866, 72 Stat. 1640)] [T.D. 6500, 25 F.R. 11910, Nov. 26, 1960, as amended by T.D. 6693, 28 F.R. 12817, Dec. 3, 1963] § 1.1015-1 Basis of property acquired by gift after December 31, 1920. (a) General rule. (1) In the case of property acquired by gift after December 31, 1920 (whether by a transfer in trust or otherwise), the basis of the property for the purpose of determining gain is the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift. The same rule applies in determining loss unless the basis (adjusted for the period prior to the date of gift in accordance with sections 1016 and 1017) is greater than the fair market value of the property at the time of the gift. In such case, the basis for determining loss is the fair market value at the time of the gift. (2) The provisions of subparagraph (1) of this paragraph may be illustrated by the following example. Example. A acquires by gift income-producing property which has an adjusted basis of $100,000 at the date of gift. The fair market value of the property at the date of gift is $90,000. A later sells the property for $95,000. In such case there is neither gain nor loss. The basis for determining loss is $90,000; therefore, there is no loss. Furthermore, there is no gain, since the basis for determining gain is $100,000. (3) If the facts necessary to determine the basis of property in the hands of the donor or the last preceding owner by whom it was not acquired by gift are unknown to the donee, the district director shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the district director finds it impossible |