how to report on turbo tax a rental property gifted by parents

[gman11]

Hello,

My parents gifted me a rental property for $1. They have had this property since 2004. When entering the assets/depreciation section in turbo tax, under "placed in service" for this rental property, should I be entering the date the property was transferred to me, or should that date be when my parents acquired the property back in 2004? 

For the cost, would it be the fair market value or the amount my parents paid for the property (whichever is lower) and subtract the land value from this amount? 

For the land value, the city records shows the land value fluctuating from year to year. Do I enter the land value posted for the year this property was transferred to me? 

thank you

[Carl]

If it's a gift, then the giver of said gift should be filing IRS Form 709 - Gift Tax Return, with the IRS. Note that nobody will pay taxes on the gift. It's just a legally mandated reporting requirement for any gifts given in a single tax year that exceed a value of $16,000.

When they gifted you the property, they gifted you everything; original cost basis (including any property improvements), as well as depreciation already taken. Since this is not a reportable/taxable transaction on anyone's tax return, you'll use their original cost basis as well as their original in-service date for the property and any property improvements, and the depreciation they have already taken on the property is also transferred to you.

under "placed in service" for this rental property, should I be entering the date the property was transferred to me,

No. You'll use the same date your parent's placed it in service. Doesn't matter that it may have been years ago.

For the cost, would it be the fair market value or the amount my parents paid for the property

Yes, which is to say, it will be the same cost basis as your parent's used.

For the land value, the city records shows the land value fluctuating from year to year

Assessed tax value is irrelevant, and is not reported on a tax return at all. It will be the same as what your parents used.

[gman11]

So this is another issue entirely but the CPA my parents used NEVER depreciated the property for them and they didn't know any better. I do my own taxes and realized that they have been getting ripped off. So the last 2 question I had with cost and land value is still a bit confusing to me. 

[Carl]

Check the prior year tax return for IRS Form 4562, as that will show the depreciation for that tax year. If you have that form and there's an amount on line 19h, then the property has most likely been depreciated as required.

I assume you are referring to the screen that asks for COST and COST OF LAND.

COST - What you paid for the property when it was originally purchased.

COST OF LAND - The amount in the COST box that you are allocating to the land.

For example, if you paid $100,000 for the entire property, the COST would be $100,000

If the value of the land is $30,000, then you enter $30,000 in the COST OF LAND box.

After that, the program (not you) will subtract COST OF LAND from the amount in COST to arrive at the value of the structure to be depreciated. Using my numbers above, the program would subtract $30,000 from $100,000 to arrive at a structure value of $70,000. The $70,000 is what would be depreciated over the next 27.5 years.

[gman11]

Hi, so I did not find a form 4562 but I was able to locate a 1099E with asset entry worksheet showing the information that you mention with the "date placed in service", cost basis", "land value". I went into turbobax under the "form" tab and did not see a form 4562 created by turbotax either and just a schedule E assess entry. 

[Carl]

Understand that the TTX program does not provide blank forms. It "creates" forms based on the data you enter. So if no assets have been entered yet, the form doesn't exist in forms mode. Enter your rental property assets in the Depreciation/Assets section of the program. Once the first asset has been completely entered, only then will the 4562 be created.

[Anonymous_]

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@gman11 wrote:

Hi, so I did not find a form 4562 but I was able to locate a 1099E with asset entry worksheet.....

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You are not going to see an actual Form 4562 if you entered the date your parents placed the property in service (back in 2004). 

You should see a couple of forms generated by TurboTax, which are entitled "Depreciation and Amortization Report" and have "Form 4562" printed on the top left side (neither one of those forms is the actual Form 4562).

For your purposes, Form 4562 would only be required in the first year the rental property was placed in service (which is 2004 in this case).

[gman11]

thank you so much for your help! One other question I had was turbo tax asked date acquired along with date place in service. The date acquired cannot be after the date placed in service. I did not acquired this in 2004 but yet turbotax makes me enter 2004 since the date placed in service was 2004 by my parents. I hope that makes sense. Thank you 

[Anonymous_]

I understand and you will have to make the dates conform in order to enter the asset into the program (i.e., the date acquired will have to be entered as the same date your parents acquired the property).

[Carl]

Since this was a gift, the date acquired is the date the giver of the gift acquired it.

[gman11]

Something I realized TTX did was if you did not claim a depreciation one year, it will adjust the amount that you can depreciate in future years to account for the missed depreciation. Is that true?

For example, the depreciation amount for a rental property with a cost basis of $100,000 over 27.5 years would be $3636 per year.  If this was rented the whole time and depreciation was taken from years 1-9 but not year 10, when you file your taxes for owning the property during year 11, should the depreciation amount increase to make up for the year it did not get depreciated correctly (year 10)? This was something I noticed with the turbo tax program after reentering the correct amount in the prior depreciation box. 

[Carl]

Something I realized TTX did was if you did not claim a depreciation one year, it will adjust the amount that you can depreciate in future years to account for the missed depreciation. Is that true?

When you enter the asset with a prior year in service date, the program will "assume" you took the required depreciation for all prior years, display that amount, then depreciate for the current tax year based on the assumed prior year's depreciation.

If you change the prior year's depreciation amount, then the program will adjust the current year depreciation to compensate.

If you did not take the prior year's depreciation, that is not the correct way to fix and report this. You need to amend the prior year's return, provided it was not placed in service "more" that two years prior.

If placed in service more than 2 years prior and you didn't depreciate it, then you have to file IRS Form 3115 with the current year's return to properly fix this.

[#13]

Something I realized TTX did was if you did not claim a depreciation one year, it will adjust the amount that you can depreciate in future years to account for the missed depreciation. Is that true?

When you enter the asset with a prior year in service date, the program will "assume" you took the required depreciation for all prior years, display that amount, then depreciate for the current tax year based on the assumed prior year's depreciation.

If you change the prior year's depreciation amount, then the program will adjust the current year depreciation to compensate.

If you did not take the prior year's depreciation, that is not the correct way to fix and report this. You need to amend the prior year's return, provided it was not placed in service "more" that two years prior.

If placed in service more than 2 years prior and you didn't depreciate it, then you have to file IRS Form 3115 with the current year's return to properly fix this.

[Frazerdl]

I have the same situation and my question is if I put acquisition date as 2009 and placed in. Service 2009 won’t the IRS be wondering why I haven’t claimed the rental until 2024?

[KrisD15]

To clarify, this thread is 2 years old and your question may not be clear to us. Could you be so kind as to start a new question or give us more information concerning exactly what you are asking?

[AmeliesUncle]

If you were gifted it in 2024, you enter the 2024 date.

You use the ADJUSTED Basis of whoever gifted you the property as you Basis.