*640 1. Petitioner was the owner as her own separate property of an undivided one-half interest in certain improved real estate lots in the city of Houston, Texas. Her interest in three of these lots was acquired by gift from her mother in 1919. Her interest in the other lots was acquired under the will of her father, who died in 1902, and by gift from her mother in 1924. Petitioner sold her one-half interest in these lots on January 1, 1936. The depreciated cost of the improvements has been agreed upon. Held, that in computing her capital gain from such sale petitioner's basis for the undivided one-half interest in the lots acquired by gift from her mother in 1919 was the fair market value of a one-half interest in the lots at the time of gift; held, further, that the basis to be used for the undivided one-half interest in the lots acquired by devise from her father and by gift from her mother was the fair market value of one-half interest in those lots on March 1, 1913.
2. Petitioner in 1936 paid certain taxes due on her undivided interest in said property for three prior years, and paid certain fees to her attorney for prosecuting a suit to secure a downward adjustment*641 in said taxes, and paid interest on a mortgage debt which she had in prior years created against the property. There was no community income from the property in 1936, it having been sold on January 1, 1936. The profits from the sale represented the separate capital gains of petitioner. Held, the amounts of taxes, attorney fees, and interest thus paid were separate obligations of petitioner and represented separate deductions of petitioner and not community deductions to be divided one-half to her and one-half to her husband. Mellie Esperson Stewart,35 B.T.A. 406">35 B.T.A. 406; affd., 95 Fed.(2d) 821, distinguished.
3. In making the sale of her undivided interest in the property, petitioner paid out certain commissions to a real estate agent for making the sale. Petitioner was not engaged in the real estate business. Held, petitioner is not entitled to deduct as ordinary and necessary business expenses the amount of these commissions paid. The Commissioner's action in deducting the amount of such commissions as an offset to the sale price of the property in computing petitioner's capital gain from the transaction is approved. Cf. Mrs. E. A. Giffin,19 B.T.A. 1243">19 B.T.A. 1243.
*642 4. For the taxable year 1936, petitioner and her husband filed separate returns. At the same time the Commissioner determined a deficiency in income tax against petitioner he also determined an overassessment in the income tax of petitioner's husband. Held, petitioner is not entitled to have credited to her income tax deficiency, if any, the overassessment which has been determined in favor of her husband. H. B. Perine,22 B.T.A. 201">22 B.T.A. 201, followed.
*830 This proceeding involves the determination by the respondent of a deficiency in income tax for the calendar year 1936 in the amount of $689.37, all of which is in controversy. The deficiency is computed upon an adjusted net income of $12,512.45.
In a statement attached to the deficiency notice, the respondent set out the adjustments to net income which he determined should be made, as follows:
| Net income as disclosed by return (loss) | ($18,336.62) | |
| Unallowable deductions and additional income: | ||
| (a) Rental income | $76.00 | |
| (b) Capital gain | 15,671.73 | |
| (c) Interest | 750.00 | |
| (d) Taxes | 9,135.09 | |
| (e) Other deductions | 5,216.25 | |
| 30,849.07 | ||
| Net income adjusted | 12,512.45 |
*643 Petitioner, by appropriate assignments of error, contests all of the above adjustments in their entirety, except adjustment (a), and in addition thereto assigns as error the failure of the respondent to credit the deficiency determined against petitioner with an overassessment *831 for the year 1936 determined in favor of her husband, W. C. Hunt, in the amount of $138.96.
In the same statement attached to the deficiency notice, the respondent explains adjustment (b) as follows:
(b) Capital net gain reported in the amount of $2,017.50 has been increased by $15,671.73 to $17,689.23. The adjustment is as shown below:
From the evidence in the record it has been determined that the profit realized by you for 1936 from the sale of your half interest in lots 1, 2, 3, 6, 7, 8, 12 and part of 11, block 255, Houston, Texas, is $59,640.75. However, as that property had been held by you more than 10 years only 30 percent of the profit, or $17,892.23, is taxable. The computation of profit follows:
| Selling price | $200,000.00 | |||
| Commission on sale | $4,000.00 | |||
| Revenue stamps on deed | 200.00 | 4,200.00 | ||
| 195,800.00 | ||||
| 3/1/13 value 1/4 interest lots 6, 7, 8, 12 & S 25 X 50 of 11, block 255, Houston, Texas, inherited from father 1902 | $33,750.00 | |||
| 3/1/13 value 1/4 interest, above property, acquired by gift 1/1/24 from mother | 33,750.00 | |||
| Building #1 | $9,687.50 | |||
| Less depreciation | 2,855.36 | 6,832.14 | ||
| 74,332.14 | ||||
| Building #2 | $20,093.75 | |||
| Less depreciation | 6,407.25 | 13,686.50 | 88,018.64 | |
| Value 12/22/19, date of gift, 1/2 interest lots 1, 2, 3, block 255, Houston, Texas | $32,500.00 | |||
| Apartment | $28,437.50 | |||
| Depreciation | 12,796.89 | 15,640.61 | 48,140.61 | 136,159.25 |
| Gain | 59,640.75 | |||
| Portion taxable (30%) | 17,892.23 |
*644 Inasmuch as incidental selling expenses of a non-dealer or non-trader are a part of the cost of consummating the transaction to which they relate, they serve to reduce the amount realized from the selling price. Consequently the amounts expended by you of $4,000 for commission on sale of the foregoing property and $200.00 for revenue stamps for the deed have been applied against the selling price instead of being allowed as separate deductions of expense.
The loss of $37.50 that was claimed by you for 1936 from the sale of securities comprising your separate property has been increased to $203.00, as shown by Exhibit A attached.
| Corrected capital gain | $17,892.23 |
| Corrected capital loss | 203.00 |
| Corrected capital net gain | 17,689.23 |
| Capital net gain reported | 2,017.50 |
| Adjustment | 15,671.73 |
*832 FINDINGS OF FACT.
Petitioner is an individual and is a resident of Houston, Texas. She filed a separate income tax return for the calendar year 1936 with the collector of internal revenue for the first district of Texas. She and her husband, W. C. Hunt, reported part of their income upon the community property basis. He also filed a separate income tax*645 return for the year 1936.
On or about December 22, 1919, petitioner and her brother, Murray B. Jones, each acquired as a gift from their mother, Sarah Brashear Jones, an undivided one-half interest in lots 1, 2, and 3, block 255, SSBB, in the city of Houston, Harris County, Texas, fronting approximately 154 feet on Fannin Street and approximately 100 feet in depth on Dallas Avenue. Located on these lots was a three-story brick building called the St. James Apartment, which was constructed about the year 1913 at a cost of $65,000. The fair market value of an undivided one-half interest in these lots on December 22, 1919, exclusive of improvements, was $38,500.
J. W. Jones, the father of petitioner and Murray B. Jones, died testate in 1902. Among other things, his will provided:
I hereby give, will and bequeath to my wife, Sarah Brashear Jones, all and singular the property of every kind and description both real, personal and mixed of which I may die seized and possessed for and during the terms of her natural life, will at her death all of said property so devised and so bequeathed to her, is to go and belong to such of my children, the issue of her body, as may be living*646 at the time of her death; but my said wife is to have full right and power during her life to sell and convey any or all of said property as she may deem proper and for the best interests of herself and children and such sale or sales by her shall vest in the purchaser or purchasers absolute title in fee simple to the property sold without reversion or remainder to said children or either of them: The proceeds my said wife will own, enjoy, have, manage and control just as she would have been entitled to own, enjoy, hold, manage and control the property sold * * *.
At the time of his death J. W. Jones and his wife, Sarah Brashear Jones, owned as community property lots 6, 7, 8, 12, and the south 25 X 50 feet of lot 11, block 255, SSBB, in the city of Houston, Harris County, Texas. Lots 6, 7, and 8 fronted approximately 154 feet on Main Street and approximately 100 feet in depth on Dallas Avenue, and were improved about 1914 with a one-story brick building at a cost of approximately $20,000. Lot 12 fronted approximately 50 feet on Dallas Avenue, and was bordered on the north by the above mentioned part of lot 11. Lot 12 and the part of lot 11 were bordered on the east by lots 1, *647 2, and 3 and on the west by lots 6, 7, and 8; and were improved about 1920 or 1921 with a one-story brick building at a cost of about $40,000.
Sarah Brashear Jones died on or about October 3, 1925.
*833 Under their father's will, petitioner and her brother, Murray B. Jones, each acquired a contingent remainder in an undivided one-fourth interest in the said lots 6, 7, 8, 12, and the south 25 X 50 feet of lot 11.
On January 1, 1924, petitioner and her brother, Murray B. Jones, each acquired as a gift from their mother an undivided one-fourth interest in said lots, 6, 7, 8, 12, and part of 11. As a result of this gift and the death of their mother petitioner and her brother thereafter and until on or about October 31, 1932, each owned in fee simple title as their separate property an undivided one-half interest in said lots 1, 2, 3, 6, 7, 8, 12, and part of 11. On or about October 31, 1932, petitioner's brother deeded his undivided one-half interest to a corporation, but petitioner continued to own her undivided one-half interest as her separate property until January 1, 1936, when she sold it for a total consideration of $200,000. The fair market value of an undivided*648 one-half interest in said lots 6, 7, 8, 12, and part of 11 as of March 1, 1913, exclusive of improvements, was the amount of $92,400. The adjusted depreciated cost basis of petitioner's one-half interest in the improvements situated upon the property in question at the date of sale was $36,159.25.
By general warranty deed dated January 1, 1936, petitioner sold her undivided one-half interest in the foregoing described property to T. P. Lee and his four married daughters for a gross consideration of $200,000. At the time of this sale petitioner owed ad valorem taxes to the city of Houston, Texas, on her one-half interest in the property for the years 1933, 1934, and 1935 in the amount of $18,270.18. These taxes were all due at the time of sale and under Texas statutes their payment was secured by a prior tax lien on the real estate. These $18,270.18 taxes were paid by petitioner in 1936 out of the proceeds of the sale of her separate property. Petitioner paid S.D. West, real estate agent of Houston, Texas, a commission of $4,000 for making the sale of her one-half interest in the property. This $4,000 was paid out of the proceeds of the sale by petitioner.
On January 1, 1936, petitioner*649 owed a principal indebtedness of $50,000, plus $1,500 accrued interest thereon, the payment of which was secured by a mortgage on said real estate. This indebtedness, including the $1,500 interest, was paid out of the proceeds of the sale. Out of the proceeds of the sale petitioner paid the sum of $1,543 as attorney fees for legal services rendered in securing an adjustment of delinquent tax liability for ad valorem taxes on said real estate for the years 1933, 1934, and 1935. This was a necessary expense for the preservation and protection of petitioner's separate real estate and was paid during the year 1936. Petitioner paid $200 for revenue stamps on the deed to T. P. Lee and associates in January 1936, and *834 during the year 1936 paid commissions on the purchase and sale of shares of corporate stock in the amount of $244.75.
Petitioner's husband, W. C. Hunt, was overassessed in the sum of $138.96 by the Commissioner of Internal Revenue through a redetermination of his income taxes for the taxable year 1936. Petitioner filed her income tax return for the year 1936 on the cash receipts basis.
OPINION.
BLACK: The first issue we have to decide is what was petitioner's*650 basis of cost of the undivided one-half interest in property which she sold on January 1, 1936, to T. P. Lee and his daughters for $200,000. The Commissioner in his computation of profit on this sale has treated the gains as capital gains and has taken into account the percentages provided by section 117 of the Revenue Act of 1936. Both parties are in agreement that this method is correct and, therefore, there is no issue on that score.
The parties are, however, in disagreement as to the basis which is to be used in computing petitioner's capital gain from the sale. The Commissioner in his determination of the deficiency has used $136,159.25 as the basis for her undivided interest in the property. The petitioner contends for a basis of $190,159.25 if the two basic dates of her acquisition are March 1, 1913, and December 1919, or $212,159.25 if the basic dates of acquisition are 1919, 1924, and 1925.
If the Board should determine that petitioner's contention for the latter basis of $212,159.25 is correct, then that would decide the proceedings in petitioner's favor and there would be no need to decide the other questions which have been raised by petitioner's numerous assignments*651 of error. However, we are unable to agree, for reasons presently explained, that petitioner is correct in claiming a basis of $212,159.25 for her interest in te property. Therefore, in the light of the pleadings and the evidence, we must decide what basis for petitioner's undivided interest should be used in the computation of her capital gain or loss on the sale in question. We need only determine this basis in so far as the land alone is concerned, since the parties have stipulated that the depreciated basis of an undivided one-half interest in the improvements on the property at the time of the sale on January 1, 1936, was the amount of $36,159.25.
The material provisions of section 113 of the Revenue Act of 1936, the act in force when the sale in question was made, are set out in the margin. 1
*652 *835 We have set out in our findings the manner in which petitioner and her brother, Murray B. Jones, each acquired an undivided one-half interest in the property in question.
The basis of the undivided one-half interest in lots 1, 2, and 3 acquired by petitioner as a gift from her mother on December 22, 1919, is the fair market value of such property at the time of such acquisition. Sec. 113(a)(4), supra.
The basis of the undivided one-fourth interest in lots 6, 7, 8, 12, and part of 11 acquired by petitioner under her father's will is the fair market value of such property at the time of the death of the decedent (1902) or as of March 1, 1913, whichever is greater. Sec. 113(a)(5) and (14), supra; cf. Fidelity & Columbia Trust Co. v. Commissioner, 90 Fed.(2d) 219; certiorari denied, 302 U.S. 723">302 U.S. 723. No evidence was offered as to the 1902 value, but this is not fatal because it would be material only if it were greater than the March 1, 1913, value. Petitioner has made no contention for a 1902 value as a basis. The basis of the undivided one-fourth interest in lots 6, 7, 8, 12, and part of 11 acquired by petitioner as a gift*653 on January 1, 1924, is the same as it would be in the hands of petitioner's mother on that date. Sec. 113(a)(2), supra. Petitioner's mother owned as her separate property an undivided one-half interest in lots 6, 7, 8, 12, and part of 11 on March 1, 1913. She made a gift of this undivided one-half interest to her two children, petitioner and Murray B. Jones, on January 1, 1924. As to this undivided one-fourth interest petitioner likewise makes no contention that the cost or other basis provided for in subdivision (a) of section 204, supra, is greater than the fair market value of such property as of March 1, 1913. Therefore, adding the two undivided one-fourth interests together, the basis of an undivided one-half interest in lots 6, 7, 8, 12, and part of 11 in the hands of petitioner on October 31, 1932, is the fair market value of such one-half interest as of March 1, 1913.
Upon the basis of the evidence, we have found that the fair market value of an undivided one-half interest in lots 6, 7, 8, 12, and part of 11 as of March 1, 1913, exclusive of improvements, was the amount of $92,400, and that the fair market value of an undivided one-half *836 interest in*654 lots 1, 2, and 3 on December 22, 1919, exclusive of improvements, was the amount of $38,500. These two amounts, plus the stipulated depreciated basis of an undivided one-half interest in the improvements in the amount of $36,159.25, all of which totals $167,059.25, represent the adjusted cost basis to petitioner. We, therefore, hold that the adjusted basis to petitioner of the property sold was the amount of $167,059.25 and that the respondent erred in determining that the adjusted basis was the amount of $136,159.25.
Petitioner's next assignments of error raise the question whether ad valorem taxes paid in 1936 on her separate real estate, attorney fees paid for legal services by petitioner in the tax reduction suit which she brought against the city of Houston, Texas, and interest paid by petitioner in 1936 on her separate indebtedness, all constitute deductible expenses to her in determining her net income. Petitioner's contention on this point in her brief is stated thus:
Where wife's separate real estate was sold by her January 1, 1936, there were no rents and revenues collected by wife during income tax taxable year of 1936, and, therefore, no community income from said*655 separate real estate to furnish a basis for dividing these deductions one-half to petitioner and one-half to her husband, W. C. Hunt.
The facts show that in 1936, in connection with the sale of her undivided one-half interest in the property to T. P. Lee and his daughters, petitioner had to pay to the city of Houston, Texas, the sum of $18,270.18 taxes. These taxes covered the years 1933, 1934, and 1935 against petitioner's interest in the property. Petitioner also paid $1,500 interest on the mortgage indebtedness which was against her undivided one-half interest in the property. Petitioner also paid $1,543 as attorney fees to her attorney for securing an adjustment of her tax liability to the city of Houston, Texas, in the tax litigation which had been brought against that city. Petitioner in her income tax return took these several amounts as deductions from her gross income.
The Commissioner in his determination of the deficiency put these three foregoing deductions on the community property basis and allowed one-half of them to petitioner and the other one-half to petitioner's husband, W. C. Hunt, determining an overassessment of taxes as to him for the year 1936. The*656 Commissioner in explaining his action in this respect, stated in his deficiency notice, as follows:
Inasmuch as both income and expenses of separate property constitute community property the items of $18,270.18 representing local taxes paid in 1936, and $1,543.00 representing attorneys' fees paid in 1936 for securing an adjustment of the foregoing tax liability, have been treated as community expenses. Accordingly, half of each item, or $9,135.09 and $771.50, respectively have been allowed as deductions from your income for 1936. *837 The Commissioner made substantially the same statement with reference to the $1,500 item of interest described above.
Respondent relies in his brief, as authority for dividing these three deductions and allowing one-half of them to petitioner and one-half of them to petitioner's husband, upon Mellie Esperson Stewart,35 B.T.A. 406">35 B.T.A. 406; affd., 95 Fed.(2d) 821. In that case we held, among other things, that under the Texas Community Property Law husband and wife are each taxable upon one-half of the net community income after the deduction of the allowable expenses incident to its production. In that case, in making*657 our holding, we said, among other things:
* * * As Corpus Juris states the principle, citing Sharp v. Zeller,110 La. 61">110 La. 61; 34 So. 129">34 So. 129:
Where separate property is encumbered, the revenue therefrom may be applied to the discharge of the encumbrance, leaving only the excess to fall into the community. * * *
In accordance with this principle, the respondent has consistently computed the income of the spouses by including in the net income of each, one-half of the net community income, thus giving each, equally, the benefit of the deductions properly attributable to such income. As far as we have been able to find, no question has been raised heretofore as to this treatment. The usual method pursued was to have each spouse report all of the community income, and the deductions therefrom, and then include in his or her individual income, one-half of the net amount so computed. The rule consistently applied is stated by O.D. 909, 4 C.B. 254, as follows:
In returns in which community income is divided between husband and wife domiciled in States where such income is divisible for income tax purposes, both husband and wife should report*658 in detail the gross income from such community property. The deductions properly chargeable against such income should be equally divided between husband and wife.
We then proceeded in the Stewart case to approve O.D. 909 quoted above, and to apply it to the particular facts of that case. The difficulty of applying our holding in the Stewart case to the three claimed deductions above described in the instant case, as respondent claims should be done, is that the facts of the instant case are not the same as they were in the Stewart case. In the Stewart case the community income from the wife's separate property exceeded the deductions applicable to such separate property and there was resulting net community income from the property, which was divided one-half to the husband and one-half to the wife. In the instant case in the taxable year there was no community income from the property in question. It was sold on January 1, 1936, and, therefore, there were no rents to fall into the community for that year. The profits, if any, from the sale of the property were separate income to petitioner. Both sides agree on that. The taxes which were paid, amounting*659 to $18,270.18, were petitioner's own taxes, for which she was personally liable, and they were a lien against her property. See arts. 7171 and 7172, Vernon's Texas Statutes.
*838 Section 23(c) of the Revenue Act of 1936 allows to a taxpayer a deduction for taxes paid or accrued within the taxable year. Petitioner was on the cash basis and under the circumstances of this case we think she is entitled to the deduction which she claims for the taxes paid in 1936. What we have said as to taxes we think applies in equal degree to the $1,500 interest which petitioner paid in 1936. This interest was paid on her separate indebtedness. The principal of the indebtedness and the interest due thereon were a lien against petitioner's separate property and had to be satisfied in the consummation of the sale which is involved here. Therefore, we think the entire amount of this interest was deductible to petitioner in the taxable year under section 23(b) of the Revenue Act of 1936.
The next item among this group of three items which the Commissioner has split into two parts is $1,543 fees, which petitioner paid for legal services rendered by her attorney in the tax suit against*660 the city of Houston, Texas, to secure a downward adjustment in the taxes against her separate property. The Commissioner has not disallowed one-half of this deduction to petitioner on the ground that it was not an ordinary and necessary business expense. No such issue is raised by the Commissioner. His sole ground of disallowance to petitioner of one-half of this deduction was that it was a community deduction and as such should be divided one-half to petitioner and one-half to her husband.
Under Texas law, where a debt was contracted by a wife or by her authority and was for the benefit of her separate estate, she and her separate estate were bound therefor. Teel v. Blair,128 S.W. 478">128 S.W. 478; Dockery v. Johnston,299 S.W. 505">299 S.W. 505. See also sec. 179, Speer's Law of Marital Rights in Texas.
In view of these Texas authorities we sustain petitioner's contention as to these attorney fees and hold that the Commissioner erred in allowing only one-half of them as a deduction to petitioner. We next take up adjustment (e) as shown by the Commissioner in his deficiency notice. The Commissioner explained this adjustment in a statement attached to the*661 deficiency notice as follows:
The deduction of $244.75, representing 1/2 of $489.50, that was claimed by you as commissions on purchases and sales of stock has been adjusted by including those commissions paid on sales in the computation of the loss of $203.00 from sale of stocks related above. The balance of the deduction represents commissions on purchases of securities. They are part of the purchase price and are not deductible as expenses. Helvering v. Winmill,305 U.S. 79">305 U.S. 79, 59 S. Ct. 45">59 S.Ct. 45.
Computation of the adjustment, item (e), is shown as follows:
| Attorney fees claimed | $1,543.00 |
| Attorney fees allowed (1/2 of $1,543.00) | 771.50 |
| Adjustment | 771.50 |
| Commissions on stock purchases and sales, disallowed as expense(1/2 of $489.50) | $244.75 |
| Commission on sale of your separate property | 4,000.00 |
| Revenue stamps on sale of your separate property | 200.00 |
| Total adjustment | 5,216.25 |
*839 We have already disposed of the item of attorney fees which is mentioned in the Commissioner's adjustment (e) shown above, along with items (c), interest, and (d), taxes, of the deficiency notice. *662 The next item in (e) is $244.75 disallowed as expenses. These were commissions paid by petitioner in the purchases of stocks and taken as a deduction on her income tax return. It is clear that petitioner was not a dealer in securities and that the Commissioner's treatment of this item was proper under Helvering v. Winmill,305 U.S. 79">305 U.S. 79. As to this item the Commissioner is sustained.
The next item in (e) is the disallowance as a deduction of $4,000 commissions which petitioner paid a real estate agent in the sale of her one-half interest in the property in question. The Commissioner, instead of treating this item of $4,000 as a separate deduction to petitioner in computing net income, disallowed it as a separate deduction and deducted it from the selling price of the real estate in computing petitioner's gain thereon. The Commissioner in his brief cites Spreckels v. Commissioner,315 U.S. 626">315 U.S. 626, as his authority for this treatment.
We do not think the Spreckels case is in point. It dealt with a specific Treasury regulation which deals with commissions paid in selling securities. That regulation has no application here.
Petitioner's*663 assignment of error as to the Commissioner's method of treating this $4,000 is as follows:
Respondent erred in considering commission on sales of real estate in the amount of $4,000.00 representing commission paid for sale of separate property as a deduction from purchase price, whereas the same should be allowed as a separate business expense and, therefore, deductible in its entirety.
If petitioner had proved that she was engaged in the real estate business there might be merit in her contention as above made, but there is no proof whatever that during the taxable year petitioner was engaged in the real estate business. We know of no statute which would entitle her to take the deduction as a separate deduction, unless she was engaged in the real estate business. We think the Commissioner's method of offsetting the sale price of the property by the amount of these real estate commissions was the correct one, under the facts we have here. Cf. Mrs. E. A. Giffin,19 B.T.A. 1243">19 B.T.A. 1243.
We think the Commissioner erred in treating the $200 stamp taxes which petitioner paid on the execution of her deed of the property to the purchasers as an offset to the price received*664 for the property *840 sold. These were taxes paid in the sale of her separate property and petitioner is entitled to deduct them in determining net income, under the provisions of section 23(c) of the Revenue Act of 1936.
Petitioner's last assignment of error is that the Commissioner erred in not crediting the overassessment of $138.96 which he determined in favor of petitioner's husband, W. C. Hunt, to the deficiency determined against petitioner. This assignment of error is not sustained. Petitioner and her husband were two different taxpayers. Each filed separate returns, as they had a right to do. There is no authority in law for the Commissioner to credit any tax liability due by petitioner with an overassessment due to her husband. H. B. Perine,22 B.T.A. 201">22 B.T.A. 201; Robert C. Roebling,28 B.T.A. 644">28 B.T.A. 644.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 113. ADJUSTED BASIS FOR DETERMINING GAIN OR LOSS.
(a) BASIS (UNADJUSTED) OF PROPERTY. - The basis of property shall be the cost of such property; except that -
* * *
(2) GIFTS AFTER DECEMBER 31, 1920. - If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift * **.
* * *
(4) GIFT OR TRANSFER IN TRUST BEFORE JANUARY 1, 1921. - If the property was acquired by gift or transfer in trust on or before December 31, 1920, the basis shall be the fair market value of such property at the time of such acquisition.
(5) PROPERTY TRANSMITTED AT DEATH. - * * * If the property was acquired by bequest, devise, or inheritance, or by the decedent's estate from the decedent, the basis shall be the fair market value of such property at the time of such acquisition. * * *
* * *
(14) PROPERTY ACQUIRED BEFORE MARCH 1, 1913. - In the case of property acquired before March 1, 1913, if the basis otherwise determined under this subsection, adjusted (for the period prior to March 1, 1913) as provided in subsection (b), is less than the fair market value of the property as of March 1, 1913, then the basis for determining gain shall be such fair market value. * * * ↩