What is the basis for depreciation of a business gift?

The basis for depreciation of a business gift is often tied to the donor's basis in the asset, which is the value the donor originally paid for it. However, when the asset is gifted, the recipient's ability to depreciate it is limited to its fair market value (FMV) at the time of the gift, should that value be lower than the donor's basis. This means that while the recipient can take the donor's basis for depreciation purposes, the depreciation that can be claimed cannot exceed the current market value of the asset. This provision helps prevent the recipient from generating excessive tax deductions based on an inflated donor basis when the asset's value has declined.

In contrast, the other options misrepresent the principles of depreciation for gifted assets. The assertion that the asset cannot be depreciated disregards the possibility of depreciation when there is an adjusted basis available. The notion that the basis is the same as the original cost fails to account for the implications of market value limitations. Lastly, claiming that the basis is determined solely by the current market value overlooks the relationship to the donor's basis, which is integral to understanding how depreciation is calculated on gifted business assets.