Cynic's got it right, but I thought it could use some further clarification.
If the donor gave you property (stock, for example) worth more than what he paid for it, you inherit the donor's basis and (continue his) holding period.
If it's worth less, your basis is the fair market value (FMV) on the date of the gift, and your holding period begins the day after.
Tax Tip: From a tax perspective, gifting an asset with a loss is a mistake. The loss - the difference between the donor's basis and the FMV on the date of the gift - is forever lost.
Example: Taxpayer buys ABC stock for $10,000 and gifts it to his son when it's worth $8,000. The $2,000 paper loss is lost, forever. His son's basis is $8,000 - the lesser of the donor's basis or the FMV on the date of the gift. Any subsequent gain between the recipient's new lower basis (8k) and the original donor's basis (10k), however, is forgiven, and not subject to tax.
Hope that answers your question and earns your Best Answer vote!
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