Key Takeaways
- When a parent gives a child property during their lifetime, the child generally keeps the parent’s original cost as their tax basis.
- A 78-year-old collector who gives a child a painting bought for $100,000 and now worth $1 million passes along a $900,000 gain. Collectibles gains are taxed at up to 28%, which means up to $252,000 in federal tax when the child sells for $1 million.
- If the child inherits the painting instead, its basis becomes its value on the day the owner dies, so a sale at $1 million shows $0 of gain.
- The same basis rules cover shares, a house or land handed down by retired parents, so a family with a big gain should check this before giving anything away early.
A Yoshitomo Nara painting heads to auction in New York this month. Fair Warning, which is selling it, puts the estimate at $10 million to $15 million. Milky Lake / Thinking One is Nara’s only canvas from 2011.
Very few of us will ever own a painting like that. But plenty of retirees own something that’s gone up a lot since they bought it: art, shares bought decades ago, a vacation home, a plot of land. If you plan to pass any of it to your kids, handing it over too soon could cost them a fortune.
Your daughter gets the painting either way
Let’s say you’re a 78-year-old collector. Years ago you paid $100,000 for a painting, and it’s worth $1 million today. You want your daughter to have it, and you have two ways to do that: give it to her now, or leave it to her when you die.
She ends up with the same painting either way. The IRS treats the two paths very differently.
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A gift comes with your cost attached
If you give property away during your lifetime, the person who gets it generally keeps your adjusted basis, according to the IRS’s Publication 551. This is long-standing law, and it applies to anyone who receives property as a lifetime gift and later sells it. If the painting is worth at least what you paid on the day you give it, your daughter’s basis is your $100,000, even though she’s receiving something worth $1 million.
That’s a big deal for art. The IRS taxes net capital gains from selling collectibles, art included, at a maximum 28% rate. The top rate on most other long-term gains in 2026 is 20%.
Give it now, and the IRS takes up to $252,000
Say your daughter keeps the painting for a few years and then sells it for $1 million. Her gain is the $1 million sale price minus your $100,000 basis, or $900,000. At the full 28%, the federal tax on that gain is $252,000.
That’s more than a quarter of the sale price going to the IRS.
Now say you hold on to the painting and leave it to her. Publication 551 says an heir’s basis is generally the property’s fair market value on the date of the owner’s death. If the painting is worth $1 million that day, her basis is $1 million. A sale at $1 million then shows $1 million minus $1 million, or $0 of gain.
None of the $900,000 the painting gained while you owned it is ever hit with capital gains tax. If it keeps rising after she inherits it, she pays tax only on the rise since your death.
You can’t dodge it by selling first
Selling the painting yourself and giving her the cash doesn’t help. Your basis is the same $100,000, so you’d have the same $900,000 gain, taxed at up to 28%.
Those are the real choices for a big built-in gain. A gift locks in your old cost for whoever gets it. Keeping the painting until death resets the cost to what it’s worth on that day. The size of the gain is the same whichever way you go. What changes is whether anyone ever pays tax on it.
Hold on, unless she’ll never sell
The way I see it, if your daughter is likely to sell someday, waiting is the far cheaper way to give her the painting. On a $1 million painting, that’s the gap between up to $252,000 in tax and $0.
Of course, her basis only matters if she sells. If she’d keep the painting on her wall for the rest of her life, giving it to her now costs her nothing in capital gains tax.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
