Carryover basis

[3] The same rule applies for calculating a loss, unless the donor's adjusted basis is greater than the fair market value of the property at the time of the gift.

[4] In this case, the loss does not carry over and the basis is the fair market value of the property at the time of the gift.

For the purpose of determining gain, Daughter uses Mother's carryover basis ($20).

For the purpose of determining loss, Daughter uses the fair market value of the property at the time of the gift ($10).

In tax law, the concept of carryover basis is prevalent in the formation of a business.