We seem to have been sidetracked on depreciation ... a few basic questions:
If I gift a depreciated rental property to my child, I understand their basis in the property is the same as mine.
1. If my child uses the property as their primary residence (for at least two years), do they (or I) owe any taxes on the gift (capital gains, income, gift tax, or otherwise)?
2. When my child eventually sells this primary residence, will they owe taxes (capital gains, income, gift tax, or otherwise)?
3. (less important question - if not answering all, please focus on #1 & #2) There was some talk of a "sham" to avoid taxes - I don't understand this implication. If one is following the rules, as written, how is it a sham? Is this an arbitrary power based on the opinion of the auditor? Assuming one is following all the rules ... isn't that adequate? Where does one draw the line here? If an executive receives compensation (stock based programs) that are taxed as capital gains (instead of income), and this transaction is following the rules, would that be a sham (since the auditor "feels" like income taxes are being avoided)?
