I was gifted a property 7 yrs ago. It was a rental property at the time and has continued to be rented since. Can i claim depreciation on it? how do i calculate this?

[MinhT · Accepted solution]

You can and should claim depreciation on your rental property. 

If you set up the property in TurboTax as an asset and indicate the date the property was placed in service, then TurboTax will calculate all the prior depreciation that should have been taken, and the depreciation for the current year.

As the property was gifted to you, your cost basis of the property is the cost basis of the donor. You have to ask the donor for his cost basis (usually the price he paid for it plus any improvements).

Your property is subject to depreciation recapture, to the extent that there is a capital gain on the property. When you sell the property, you must recapture all depreciation allowable and pay tax on it at the rate of 25%. The emphasis is on allowable, this means that if you did not actually deduct depreciation (by omission or by will), you will still have to calculate depreciation allowable during the whole rented period and recapture that amount of depreciation and pay tax on it.

In case you never deducted depreciation, I recommend that you amend your tax returns for the years 2014, 2015 and 2016 to claim it. Your rental profit in those years will be lower and it may affect your tax in those years.

There is a time limit and you can only file the amended return (Form 1040X) within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. Depreciation for the years before 2014 cannot be claimed but you will still have to calculate it and include it recapture depreciation when you sell the property.

To amend your tax returns for those years please follow these links. You must start by amending 2014, then 2015 and finally 2016:

https://turbotax.intuit.com/personal-taxes/cd-download/amend/ty16/

https://turbotax.intuit.com/personal-taxes/cd-download/amend/ty15/

https://turbotax.intuit.com/personal-taxes/cd-download/amend/ty14/