Sale of depreciated assets, with fair market value on the date of transfer less than the adjusted basis of the transferor (i.e., assets transferred at a loss for the transferor), prior to gifting is preferable to directly gifting depreciated assets. Following sale of depreciated assets by the transferor, sale proceeds may then be gifted by the transferor to the transferee. Sale of depreciated assets prior to gifting allows the transferor to harvest losses to offset current or future taxable gains. Whereas, directly gifting depreciated assets deprives the transferor of the ability to harvest losses.
Regardless of the mode of gifting, transfer tax liability may be incurred by the transferor, including gift tax and generational skipping transfer tax (GSTT) liabilities.