So far I'm understanding that since the FMV is higher than the Donor's Adjusted Basis, I will use the Donor's Adjusted Basis.
That amount is on the order of $10,000 for the building and there are some carry over basis from stairs ($199 left on a 31.5 year life), roof ($270 left on a 27.5 life), and refinance cost ($786 left on a 30 year life) from a prior property that were 1031 exchanged into the latest property.
I read Publication 551 (12/2018), Basis of Assets | Internal Revenue Service (irs.gov) and don't see where I need to restart the depreciation schedule. It does seem weird that the stairs from a 1031 carry over only had about a year to two left and I need to stretch it out again over 31.5 years.
The link does also say that the basis is increased by the gift tax paid by the donor using the following fraction: Figure the increase by multiplying the gift tax paid by a fraction. The numerator of the fraction is the net increase in value of the gift, and the denominator is the amount of the gift.
If the lifetime gift exemption is used then I guess there's no gift tax paid and thus no increase in basis? This is the rub I alluded to earlier: there does seem to be a loss when the donor gives when alive rather than getting the step-up in basis when passing.
