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TITLE 26-INTERNAL REVENUE CODE adjusted basis of such property immediately before the death of the decedent. (g) Other special rules and definitions (1) Fair market value For purposes of this section, when not oth- erwise distinctly expressed, the term "fair market value" means value as determined under chapter 11. (2) Property passing from the decedent For purposes of this section, property pass- ing from the decedent shall be treated as property acquired from the decedent. (3) Decedent's basis unknown If the facts necessary to determine the basis (unadjusted) of carryover basis property im- mediately before the death of the decedent are unknown to the person acquiring such property from the decedent, such basis shall be treated as being the fair market value of such property as of the date (or approximate date) at which such property was acquired by the decedent or by the last preceding owner in whose hands It did not have a basis deter- mined in whole or in part by reference to its basis in the hands of a prior holder. (4) Certain mortgages For purposes of subsections (c), (d), and (e), if- (A) there is an unpaid mortgage on, or in- debtedness in respect of, property, (B) such mortgage or indebtedness does not constitute a liability of the estate, and (C) such property is included in the gross estate undiminished by such mortgage or indebtedness, then the fair market value of such property to be treated as included in the gross estate shall be the fair market value of such proper- ty, diminished by such mortgage or indebted- ness. (h) Adjustment to basis for December 31, 1976, fair market value (1) Marketable bonds and securities If the adjusted basis immediately before the death of the decedent of any property which is carryover basis property reflects the adjusted basis of any marketable bond or se- curity on December 31, 1976, and if the fair market value of such bond or security on De- cember 31, 1976, exceeded its adjusted basis on such dL te, then, for purposes of determin- ing gain, the adjusted basis of such property shall be increased by the amount of such excess. (2) Property other than marketable bonds and se- curities (A) In general If- (I) the adjusted basis immediately before the death of the decedent of any property which is carryover basis proper- ty reflects the adjusted basis on Decem- ber 31, 1976, of any property other than a marketable bond or security, and (ii) the value of such carryover basis property (as determined with respect to the estate of the decedent without regard to section 2032) exceeds the adjusted basis of such property immediately before the death of the decedent (determined with- out regard to this subsection), then, for purposes of determining gain, the adjusted basis of such property immediately before the death of the decedent (deter- mined without regard to this subsection) shall be increased by the amount deter- mined under subparagraph (B). (B) Amount of increase The amount of the increase under this subparagraph for any property is the sum of- (I) the excess referred to in subpara- graph (A)(ii), reduced by an amount equal to all adjustments for depreciation, amor- tization, or depletion for the holding period of such property, and then multi- plied by the applicable fraction deter- mined under subparagraph (C), and (ii) the adjustments to basis for depreci- ation, amortization, or depletion which are attributable to that portion of the holding period for such property which occurs before January 1, 1977. (C) Applicable fraction For purposes of subparagraph (B)(i), the term "applicable fraction" means, with re- spect to any property, a fraction- (i) the numerator of which is the number of days in the holding period with respect to such property which occurs before January 1, 1977, and (ii) the denominator of which is the total number of days in such holding period. (D) Substantial improvements Under regulations prescribed by the Sec- retary, if there is a substantial improve- ment of any property, such substantial im- provement shall be treated as a separate property for purposes of this paragraph. (E) Definitions For purposes of this paragraph- (I) The term "marketable bond or secu- rity" means any security for which, as of December 1976, there was a market on a stock exchange, in an over-the-counter market, or otherwise. (ii) The term "holding period" means, with respect to any carryover basis prop- erty, the period during which the dece- dent (or, if any other person held such property immediately before the death of the decedent, such other person) held such property as determined under sec- tion 1223; except that such period shall end on the date of the decedent's death. (I) Regulations The Secretary shall prescribe such regula- tions as may be necessary to carry out the pur- poses of this section. (Added Pub. L. 94-455, title XX, § 2005(a)(2), Oct. 4, 1976, 90 Stat. 1872.) PRIOR PROVISIONS A prior section 1023, act Aug. 16, 1954, ch. 736, 68A Stat. 302, relating to cross references, was renumbered section 1024. § 1023 Page 644