nothing gets the quitclaim date, right?
Only the IRS Form 709 which is filed completely separately from any tax return.
Since this was gifted and disposed of within the same year, option 2 is still the best?
It doesn't matter really. Either way, the bottom line gain or loss on the sale will be the same.
When business property (which is exactly what rental property is) gets transferred from one owner to another, and the owner relinquishing the property is still living at the time, the depreciation taken by the original owner "will" *'be" *taxed" to the recipient of the property one way or the other, when the property is sold by the recipient. There is one, and only one exception that I personally am aware of.
When the owner of a rental property dies and the property gets transferred to their heir or other beneficiary recipient (usually named in a will), for the recipient all prior depreciation taken on the property by the deceased just "evaporates" into the neater-regions of la-la land never to be see or heard from again. The recipients cost basis on the property is the FMV of the property on the date the original owner passed away - NOT the date the recipient got control of the property, or the date their name was put on the deed. It's the date the original owner passed away. This is because in a fair number of cases it can take years to "settle the estate" of the deceased and get everything left by the deceased, distributed to their heirs or beneficiary recipients.
This is one reason why I think it's a bad idea for aging parents to pass things of value on to their children before they die. Say mom and dad purchased that rental property in 1970 for $30000 with $3000 allocated to the land, and have been renting and depreciating it the entire time. The structure value of $27,000 was fully depreciated at the end of 1997. If they "gift" it to their child before they die, the child's cost basis when they sell the property is only the $3000 value of the land, since the structure is fully depreciated. So if that property is now worth $300,000 and that's what they get for it when they sell, they're taxed on $297,000.
If mom and dad leave the property to them in the will and the last parent passes in 2019, the FMV of the house is $300,000 and that's their cost basis. So if they sell it for $300,000 there's no tax consequence and they can put $300,000 in their pocket "TAX" "FREE".
Now my parents are in their 80's. A few years ago they talked to me about gifting me one of their three rental properties purchased back in the 80's, so I'd have it before they passed. I informed them that I would much rather pay the cost of having a will prepared for them, or the cost of updating any will they may already have. Only cost me $300 for them to update their will. Both of my parents are still living and I have no desire for them to leave this earth anytime soon just because I've been willed one of their rental properties. But when that day does come, they will leave this earth knowing they left their children in a better financial position than they would have by gifting their properties to us.
