How is the basis of property received as a gift generally determined?

The basis of property received as a gift is generally determined by the donor's adjusted basis at the time of the gift. This means that when an individual receives property as a gift, the recipient typically takes on the same basis in the property that the donor had, which is referred to as the carryover basis. This serves to maintain continuity in the tax treatment of the property, particularly when the property is later sold.

In situations where the fair market value of the property at the time of the gift is relevant, it primarily pertains to specific circumstances such as if the property appreciates and the recipient later sells it for more than the donor’s basis, or if the property depreciates and the sale price is less than the donor’s basis. However, the key principle for determining the basis at the time of receipt is the donor's adjusted basis, not the fair market value. This is to prevent a tax windfall for gifts that have appreciated in value.

Therefore, the correct basis for a gifted property is indeed aligned with the donor's basis, which facilitates an accurate measurement of gain or loss upon subsequent disposition of the property.