26 CFR §1.1014-8

1. (a)
   1. (1)Where property is transferred for life, with remainder in fee, and the remainderman dies before the life tenant, no adjustment is made to the uniform basis of the property on the death of the remainderman (see paragraph (a) of § 1.1014-4). However, the basis of the remainderman's heir, legatee, or devisee for the remainder interest is determined by adding to (or subtracting from) the part of the adjusted uniform basis assigned to the remainder interest (determined in accordance with the principles set forth in §§ 1.1014-4 through 1.1014-6) the difference between—
      1. (i)The value of the remainder interest included in the remainderman's estate, and
      2. (ii)The basis of the remainder interest immediately prior to the remainderman's death.
   2. (2)The basis of any property distributed to the heir, legatee, or devisee upon termination of a trust (or legal life estate) or at any other time (unless included in the gross income of the legatee or devisee) shall be determined by adding to (or subtracting from) the adjusted uniform basis of the property thus distributed the difference between—
      1. (i)The value of the remainder interest in the property included in the remainderman's estate, and
      2. (ii)The basis of the remainder interest in the property immediately prior to the remainderman's death.
2. (b)The provisions of paragraph (a) of this section are illustrated by the following examples:
3. (c)The rules stated in paragraph (a) of this section do not apply where the basis of the remainder interest in the hands of the remainderman's transferee is determined by reference to its cost to such transferee. See also paragraph (a) of § 1.1014-4. Thus, if, in example (1) of paragraph (b) of this section B sold his remainder interest to C for $547 in cash, C's basis for the stock distributed to him upon the death of A terminating the trust is $547.