Carryover Basis

After a particularly humiliating Tinder experience, your brother buys an extremely elaborate fitness machine known as the Ab Builder 5000. It costs $16,000. He uses it for about a week and then sticks it in his basement.

A year later, you're helping him clean his house and you stumble onto the Ab Builder (you literally stumble upon it...afterward, you start walking with a pronounced limp). You've wanted to get into shape for awhile, so you ask if you can keep it. He says, "sure."

Now the Ab Builder's carryover basis comes into play. It sets the taxable value for the item. If the limp you developed stumbling over the Ab Builder develops into gangrene and eventually into sepsis, leading to your shocking, tragic demise, the carryover basis of the Ab Builder will determine how much tax your heirs will have pay in taxes. If you paid a gift tax when you received the Ab Builder from your brother, that amount is taken into account when determining the carryover basis.