How to depreciate a gifted commercial rental property

[andre_arrieta]

Hello, I was gifted a commercial rental property on 9/1/2021 and I had a couple questions after reading information on how to set up this asset in turbo tax for depreciation.

My understanding is the gift recipient's cost basis is the gifter's original cost basis minus the depreciation the gifter had taken up to the date it is gifted. So if the giftor had a initial cost basis of 900K ( $526,436 Building ,  $373,564 Land) and had paid a total of $66,834 in depreciation up until the date the property was gifted (9/1/2021), would the recipient's cost basis for depreciation be $833,166( 459,602 Building, 373,564 Land)?

Also, when setting up this asset for depreciation in TurboTax it asks twice when the property was purchased or acquired and once when the property was first used for business. The property was gifted on 9/1/2021, would that be the date for all three fields for me or because it was gifted do I need to enter the date the property was purchased by the giftor ( 4/16/2017) for any of these values?

Thank you!

[DianeW777]

Yes, you show the correct breakdown for the land and building based on your example. The basis to the recipient (yourself) would be the building cost minus depreciation to arrive at the building depreciable basis for you.  I might add that if there was any gift tax paid, the amount of that tax would also be added to the cost basis for the recipient as well (apportioned to building and land).

Note: To determine the allowed depreciable cost basis it will be the lower of:

1. Cost basis as determined above, or
2. Fair market value at the time of the gift

The land cost basis would not change because land is not a depreciable asset and not depreciation expense has been used on the land. If FMV is required to be used you can use the cost apportionment for building and land to arrive at the correct amount for each.

Your acquisition date will be the date of the gift (9/1/2021) for all three fields.

[Anonymous_]

@andre_arrieta 

You need to get the exact figures into TurboTax as the donor had originally because (as the donee) you acquire the donor's adjusted basis, depreciation deductions (accumulated), and holding period.

The "lower of cost basis or fair market value at the time of the gift" applies to sales of gifted property when determining whether there is a loss on the sale. 

[andre_arrieta]

Thank you for the information. The only thing I am still a little uncertain about is how the gifters holding period for the property (4/16/2017 - 9/1/2021) impacts me outside of calculating the depreciation they paid while they owned the property and using that to calculate my adjusted cost basis from their cost original basis.

Perhaps that's all there is to it, reducing their original cost basis by their total depreciation over that time period to determine my cost basis moving forward. If so then I think I am set.

[Anonymous_]

Correct; you just need to be concerned with entering the accumulated depreciation that accrued to the donor during the time period that the donor held the property for rental use.