My mother in law and I owned a rental property 50/50 last July 8/1/2020 she gifted me her 1/2 interest. Now I need help figuring out how to update schedule E?

[Rwd123]

I have a full breakdown of her gifted cost basis (her cost   Improvements - PAL carry forwards   depreciation). I have a excel sheet with my costs/here costs 50/50 up until 8/1/2020 and another sheet with my full costs (8/1/2020 - 12/31/2020). I created a new asset to add to schedule E with her gifted 1/2 adjusted basis, now my question is do I list the upto July costs/expenses on the first asset and the post 8/1 costs/expenses onto the new asset I added? If I do this does that mean each year going forward I have to list 1/2 expense to each or do I just add the asset leave income/expenses blank for it and add 100% of all income/expense to the original asset? Then on her tax return she just lists here up to 8/1 then puts disposed of asset, then gifted and I have her file a 709 gift form by April 15th? her 1/2 value is roughly 122K that she gifted me. Need some advice as I'm a bit stuck right now how to make these updates on schedule E. Thanks - Robert

[ColeenD3]

Please see this answer from Carl.

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If you already have the property asset listed in the Assets/Depreciation section with 50% ownership, then you have to show your acquisition of the other 50% as a completely and physically separate asset. Then depreciation on that additional 30% will start in 2020 on the date of your acquisition. But there is an easier way less prone to user error resulting in an audit.

Start from the beginning and Indicate that you converted your 50% of  the property to personal use on the date you acquired the other 50%. Enter only the rental expenses incurred up to the date of conversion to personal use. Then work through the assets in the assets/depreciation section. You must do the below for each individual asset listed.

Indicate that "I stopped using this asset in 2020". The conversion date will be one day "BEFORE" you acquired 100% ownership of the property. On the "Special Handling Required?" screen, select YES. (If you select no, you will be "forced" to enter sales information. You did not sell it.)  As you work through the asset, write down the amount in the COST box and the COST OF LAND box. After working through that asset in it's entirety, write down the prior years depreciation and current year depreciation taken. Add those two numbers together to get the total depreciation taken on the property.

Now subtract the total depreciation taken from the amount in the COST box that you wrote down earlier. This will be your new cost basis on this specific asset. You must do the above for each individual asset listed.

Once done, the entire property and all assets associated with it are converted to personal use on the date that is one day "BEFORE" you acquired 100% ownership of the property.

Now you will enter an entirely new rental property of which you own 100% of. Your acquisition date of that property will be the date you acquired 100% ownership of it.  Your cost basis of the property and any other assets listed will be the "adjusted" cost basis you figured on each asset with the math above. Depreciation will start over from day one (the date you acquired 100% ownership) for the next 27.5 years.