When a gift is made, the Donee (recipient) assumes the basis of the Donor (giver). Therefore, if the Donor was holding an asset with a large amount of appreciation, the Donee will assume that increase in value. In other words, the Donee is assuming the Donor’s capital gain. It is therefore almost always better to gift assets with as little appreciation in them as possible, like cash, so as not to burden the Donee with the capital gain on sale. This is especially true since any capital gain is wiped out when an
asset is inherited.
