“(a) In general.—Any property which is transferred by gift or at death shall be treated as sold for its fair market value on the date of such gift or death.

“(b) Exceptions.—

“(1) SPOUSE OR SURVIVING SPOUSE.—This section shall not apply to a transfer of property to the spouse or surviving spouse of the transferor (or to a qualified spousal trust).

“(2) CERTAIN TANGIBLE PERSONAL PROPERTY.—In the case of tangible personal property, this section shall only apply to the following:

“(A) Property held in connection with a trade or business.

“(B) Property held for investment.

“(C) Collectibles (as defined in section 408(m) (determined without regard to paragraph (3) thereof)).

“(3) CHARITABLE CONTRIBUTIONS.—This section shall not apply to any transfer to an organization described in section 170(c).

“(c) Special rules for trusts.—

“(1) CERTAIN GRANTOR TRUSTS.—In the case of any property which—

“(A) is held in a trust of which the grantor or another person is treated as the owner under subpart E of part I of subchapter J of chapter 1, and

“(B) is includible in the gross estate of the grantor or such other person under chapter 11,

“(2) OTHER TRUSTS.—In the case of any property held in trust and not described in paragraph (1), such property shall be treated as transferred under subsection (a) upon the transfer of such property to a trust.

“(3) TRANSFERS FROM AND MODIFICATIONS OF TRUSTS.—The Secretary may by regulation prescribe such rules to treat the modification of the terms of a trust or the transfer or distribution of trust assets (including to another trust) as a transfer described in subsection (a) as are necessary or appropriate to prevent the avoidance of this section.

“(4) GENERATION-SKIPPING TRUSTS.—At the end of each 30-year period for which any property is continuously held in trust (other than property described in paragraph (1)), such property shall be treated as transferred pursuant to subsection (a).

“(5) QUALIFYING SPOUSAL TRUST.—

“(A) IN GENERAL.—The property of a qualifying spousal trust shall be treated as transferred under subsection (a)—

“(i) upon the death of the spousal beneficiary,

“(ii) upon the distribution of such property from such trust to any person other than the spousal beneficiary, or

“(iii) at such time such property ceases to be held by a qualifying spousal trust.

“(B) QUALIFYING SPOUSAL TRUST.—For purposes of this section, a trust is a qualifying spousal trust if—

“(i) the sole beneficiary of such trust is the spouse, or surviving spouse of the transferor, or

“(ii) such spouse or surviving spouse is the sole life tenant, or sole income beneficiary, of such trust.

“(d) Exclusion of certain gifts.—In the case of gifts (other than gifts of future interests in property) made to any person during the taxable year, so much of the dollar amount of such gifts to such person as does not exceed the amount in effect for the calendar year under section 2503(b) in which the taxable year begins shall not be taken into account under subsection (a) for such taxable year. Where there has been a transfer to any person of a present interest in property, the possibility that such interest may be diminished by the exercise of a power shall be disregarded in applying this subsection, if no part of such interest will at any time pass to any other person.

“(e) Regulations.—The Secretary shall prescribe such regulations as may be necessary to prevent the avoidance of the purposes of this section.”.

“(h) Property treated as sold at death.—Subsection (a)(1) shall not apply to any property that is transferred at death and treated as sold under section 1261.”.

“(1) GIFTS BEFORE JANUARY 1, 2026.—If the property”;

“(2) GIFTS AFTER DECEMBER 31, 2025.—If the property was acquired by gift after December 31, 2025, the basis shall be the fair market value of such property at the time of the gift.”.

“(b) Transferee has transferor’s basis.—In the case of any transfer of property described in subsection (a), the basis of the transferee in the property shall be the adjusted basis of the transferor.”.

“(g) Property acquired from decedent spouse.—In the case of property which passes from the decedent to (or in trust for the benefit of) the decedent’s surviving spouse in a transfer described in section 1041(a)(1), the basis of such property in the hands of the transferee shall be determined under section 1041(b) and not this section.”, and

“(h) Basis must be consistent with gains recognized in deemed realization.—The basis of any property to which subsection (a) applies shall not exceed the amount for which the property was treated as sold under section 1261.”.

“(f) Basis must be consistent with gains recognized in deemed realization.—The basis of any property to which subsection (a)(2) applies shall not exceed the amount for which the property was treated as sold under section 1261.”.

“(a) In general.—Any property which is transferred by gift or at death shall be treated as sold for its fair market value on the date of such gift or death.

“(b) Exceptions.—

“(1) SPOUSE OR SURVIVING SPOUSE.—This section shall not apply to a transfer of property to the spouse or surviving spouse of the transferor (or to a qualified spousal trust).

“(2) CERTAIN TANGIBLE PERSONAL PROPERTY.—In the case of tangible personal property, this section shall only apply to the following:

“(A) Property held in connection with a trade or business.

“(B) Property held for investment.

“(C) Collectibles (as defined in section 408(m) (determined without regard to paragraph (3) thereof)).

“(3) CHARITABLE CONTRIBUTIONS.—This section shall not apply to any transfer to an organization described in section 170(c).

“(c) Special rules for trusts.—

“(1) CERTAIN GRANTOR TRUSTS.—In the case of any property which—

“(A) is held in a trust of which the grantor or another person is treated as the owner under subpart E of part I of subchapter J of chapter 1, and

“(B) is includible in the gross estate of the grantor or such other person under chapter 11,

“(2) OTHER TRUSTS.—In the case of any property held in trust and not described in paragraph (1), such property shall be treated as transferred under subsection (a) upon the transfer of such property to a trust.

“(3) TRANSFERS FROM AND MODIFICATIONS OF TRUSTS.—The Secretary may by regulation prescribe such rules to treat the modification of the terms of a trust or the transfer or distribution of trust assets (including to another trust) as a transfer described in subsection (a) as are necessary or appropriate to prevent the avoidance of this section.

“(4) GENERATION-SKIPPING TRUSTS.—At the end of each 30-year period for which any property is continuously held in trust (other than property described in paragraph (1)), such property shall be treated as transferred pursuant to subsection (a).

“(5) QUALIFYING SPOUSAL TRUST.—

“(A) IN GENERAL.—The property of a qualifying spousal trust shall be treated as transferred under subsection (a)—

“(i) upon the death of the spousal beneficiary,

“(ii) upon the distribution of such property from such trust to any person other than the spousal beneficiary, or

“(iii) at such time such property ceases to be held by a qualifying spousal trust.

“(B) QUALIFYING SPOUSAL TRUST.—For purposes of this section, a trust is a qualifying spousal trust if—

“(i) the sole beneficiary of such trust is the spouse, or surviving spouse of the transferor, or

“(ii) such spouse or surviving spouse is the sole life tenant, or sole income beneficiary, of such trust.

“(d) Exclusion of certain gifts.—In the case of gifts (other than gifts of future interests in property) made to any person during the taxable year, so much of the dollar amount of such gifts to such person as does not exceed the amount in effect for the calendar year under section 2503(b) in which the taxable year begins shall not be taken into account under subsection (a) for such taxable year. Where there has been a transfer to any person of a present interest in property, the possibility that such interest may be diminished by the exercise of a power shall be disregarded in applying this subsection, if no part of such interest will at any time pass to any other person.

“(e) Regulations.—The Secretary shall prescribe such regulations as may be necessary to prevent the avoidance of the purposes of this section.”.

“(h) Property treated as sold at death.—Subsection (a)(1) shall not apply to any property that is transferred at death and treated as sold under section 1261.”.

“(1) GIFTS BEFORE JANUARY 1, 2026.—If the property”;

“(2) GIFTS AFTER DECEMBER 31, 2025.—If the property was acquired by gift after December 31, 2025, the basis shall be the fair market value of such property at the time of the gift.”.

“(b) Transferee has transferor’s basis.—In the case of any transfer of property described in subsection (a), the basis of the transferee in the property shall be the adjusted basis of the transferor.”.

“(g) Property acquired from decedent spouse.—In the case of property which passes from the decedent to (or in trust for the benefit of) the decedent’s surviving spouse in a transfer described in section 1041(a)(1), the basis of such property in the hands of the transferee shall be determined under section 1041(b) and not this section.”, and

“(h) Basis must be consistent with gains recognized in deemed realization.—The basis of any property to which subsection (a) applies shall not exceed the amount for which the property was treated as sold under section 1261.”.

“(f) Basis must be consistent with gains recognized in deemed realization.—The basis of any property to which subsection (a)(2) applies shall not exceed the amount for which the property was treated as sold under section 1261.”.