How are gifts of appreciated assets treated differently for tax purposes?

Gifts of appreciated assets are treated in such a way that when the recipient eventually sells that asset, they may be subject to capital gains tax. This situation arises because the recipient takes on the donor's basis in the asset for tax purposes, meaning the original purchase price or investment in the property is what the recipient uses to determine if they have a capital gain.

When the recipient sells the appreciated asset, they will calculate their gain based on the difference between the selling price and the donor's basis (not the fair market value at the time of the gift). If the asset has appreciated in value since it was originally purchased, the recipient may owe capital gains tax on that appreciation when they sell it.

The other options do not reflect the tax implications accurately. Gifts of appreciated assets are not exempt from all taxes, nor are they taxed only at the donor's rate. Additionally, they do not qualify for additional deductions; rather, the impact on the donor's tax situation is generally related to the gift tax exclusion and potential implications if the donor exceeds certain thresholds.