Your Spouse Gifted You an Asset — Do You Still Owe Tax When You Sell?
Gifts between US citizen spouses are completely free of gift tax under the unlimited marital deduction — there's no dollar cap and no waiting period involved. But that doesn't mean the built-in gain disappears. When one spouse gives an asset to the other during life, the recipient takes on carryover basis, meaning your cost basis for future tax purposes is the donor spouse's original purchase price, not the value on the day you received it. This is fundamentally different from inheriting an asset at death, which gets a stepped-up basis to fair market value that wipes out prior gains entirely. So if your spouse bought stock for $150,000 that's now worth $400,000 and gifts it to you, your basis is still $150,000 — sell it later for $450,000, and you owe capital gains tax on $300,000 of gain, not just the $50,000 of appreciation since the gift.
Carryover Basis vs Stepped-Up Basis
| Transfer Type | Recipient's Basis |
|---|---|
| Gift between living spouses | Donor's original cost basis (carryover) |
| Inheritance at death | Fair market value at death (stepped-up) |
This carryover rule applies regardless of how much time passes between the gift and the sale — there's no "wait long enough and the gain disappears" rule like some countries use. The only way to reset basis to current value is for the asset to pass through an estate at death.
Frequently Asked Questions
No — gifts between US citizen spouses are unlimited and free of gift tax under the marital deduction.
No — you carry over the donor spouse's original cost basis, regardless of how long you wait to sell.
Inherited assets get a stepped-up basis to fair market value at death; lifetime spousal gifts do not.
※ Estimate only. Applies to US citizen spouses; special rules apply for non-citizen spouses. Consult a tax professional for your specific situation.