Carryover basis is the tax rule under which the recipient of a gifted asset takes the donorTMs original cost basis and holding period rather than receiving a step-up to fair market value. This means that when the recipient eventually sells the asset, capital gains are calculated using the donorTMs basis, potentially resulting in higher taxable gains than if the asset had been inherited. Carryover basis is central to lifetime gifting strategies, including gifts of closely held business interests, appreciated securities, or real estate, and must be weighed against estate-tax and non-tax planning goals.

Advisors discuss carryover basis when evaluating whether clients should gift appreciated assets during life or retain them for a potential step-up at death. In business and estate planning, they coordinate with CPAs to model after-tax outcomes of gifting versus bequeathing interests. Carryover basis is especially relevant in family business transfers, where heirs may later sell or recapitalize their interests. Understanding carryover basis allows advisors to explain why some assets are better gifted than others and why basis planning should be part of any comprehensive wealth-transfer strategy.