Solved: Quitclaimed Rental Property
Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Announcements
TurboTax has you covered during Covid. Get the latest stimulus info here.
cancel
Showing results for 
Search instead for 
Did you mean: 
Redan54
Level 2

Quitclaimed Rental Property

Just making sure the IRS considers this as a "gift" everywhere so all I have to worry about is Form 709 and the rental stuff up until that gift date right?

 

There is no where on the tax return where the gift will be considered as "selling at $0" to worry about those forms, right?  Filling out those forms would make me have a huge capital loss, unless there's a different way of doing that.

 

Regarding the Rental income, on the page where it says if the property was disposed of this year or not, it says specifically "Do not check this box if the disposition was to a related party." well...if not here then where else would I indicate I disposed of the property & won't be claiming it anymore? Is quitclaimming to a family member considered "convert to personal use" option?

 

The only section I see that I could indicate it is no longer mine is later on the section that says "was sold, retired, stolen, destroyed, disposed of, converted to personal use, traded in, or given away (or it's no longer being used in this business for some other reason.)" that is found under the different assets of the rental property that I could depreciate...

1 Best answer

Accepted Solutions
tagteam
Level 15

Quitclaimed Rental Property


@Redan54 wrote:

Just making sure the IRS considers this as a "gift" everywhere so all I have to worry about is Form 709 and the rental stuff up until that gift date right?


In addition to what has been previously posted here, it is worth mentioning that both you (the donor) and the donee (recipient of the gift) need to know the fair market value of the property on the date of the gift and, further, you might want to seek professional tax and/or legal guidance in this matter.

 

 

View solution in original post

16 Replies
tagteam
Level 15

Quitclaimed Rental Property


@Redan54 wrote:

The only section I see that I could indicate it is no longer mine is later on the section that says "was sold, retired, stolen, destroyed, disposed of, converted to personal use, traded in, or given away (or it's no longer being used in this business for some other reason.)" that is found under the different assets of the rental property that I could depreciate...


Then you should answer "Yes" on the Special Handling Required screen. If you read that screen, it covers the scenario where the asset was given away as a gift.

Carl
Level 15

Quitclaimed Rental Property

The 709 really has nothing to do with your federal 1040 income tax.

When starting your work through of the property, it's about 3 screens in where you'll select the option to indicate "I sold or disposed of this property". You will NOT select the option that it was converted to personal use.

You're report your rental income/expenses as usual, up to the time of disposition.

Then in the assets section you work through each individual asset one at a time and select YES on the screen for "I stopped using this asset in 2019".  A screen or two later you're presented a "Special Handling Required?" screen. You'll select YES on that screen after reading it, where you'll see that one of the special handling reasons is that you gave it away.

The only other thing you might have to deal with would be any vehicle use if you claimed any such use (even if less than 100% business use) during your ownership of the property. If you did not give the vehicle away, then select the option that you removed it for personal use. But weather you gave it away or not, so long as you did not sell it you'll select YES on the special handling required screen.

Then 2019 will be the last year you will report this rental on SCH E on your return. HOWEVER, the recipient of your gift gets "everything" - the prior depreciation you've already taken, the carry over losses you have, and your original cost basis (plus the cost of any property improvements you paid for during your ownership.) So there's some forms you need to print out and provide the recipient of your gift. They will *NEED* the information from those forms when they report the rental property for their very first time on their own SCH E.

-The 2019 IRS Form 4562's for this specific property. There will be two of them, and they both print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Report".

- The 2019 IRS Form 8582. This form shows your carry over losses. If you don't have that form in your 2019 tax return package, that just means you don't have any carry over losses. It is "NOT" common for the owner of long term residential rental property to "NOT" have this form. But it's not impossible or unheard of either.

Without the forms above form your 2019 tax return, it will be difficult (if not impossible) for the recipient of your gift to correctly enter data concerning the gift on their tax return.

If this transfer was done mid-year, then the gift recipient will need these forms to enter data correctly on  their 2019 tax return. All in service dates and cost basis on their 2019 tax return will match exactly all that information on your tax return. Their carry over losses (if you have any) will either match or exceed what's on the 8582 you provide them.

As for the 709:

You fill that out separate from the tax return and check the instructions for the mailing address. It is not the same address you send your 1040 tax return to.

When you die, there as a maximum value of all cash and assets that can be "inherited" by a beneficiary with no tax consequences. I think it's still around $5,2M per person (the person that dies). All the 709 does is allow you to transfer the inheritance before you die, and the value of that inheritance is subtracted from your lifetime total allowed. 

For most of us taxpayers, we'll never even come close to the maximums. But of course, that doesn't negate the 709 reporting requirement.

Rick19744
Level 11

Quitclaimed Rental Property

Just to add some historical detail here, the estate tax exemption is significantly higher than reflected above.  See the exemption for the last several years.  As you can see, it is now $11.58 mil per person.

 

A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent's dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, $5,490,000 in 2017, $11,180,000 in 2018, $11,400,000 in 2019, and $11,580,000 in 2020.

*A reminder that posts in a forum such as this do not constitute tax advice.*
tagteam
Level 15

Quitclaimed Rental Property


@Redan54 wrote:

Just making sure the IRS considers this as a "gift" everywhere so all I have to worry about is Form 709 and the rental stuff up until that gift date right?


In addition to what has been previously posted here, it is worth mentioning that both you (the donor) and the donee (recipient of the gift) need to know the fair market value of the property on the date of the gift and, further, you might want to seek professional tax and/or legal guidance in this matter.

 

 

View solution in original post

Redan54
Level 2

Quitclaimed Rental Property

was just making sure that was the correct screen (to mark each asset individually) and there wasn't like a different screen elsewhere that marks the entire property as a single whole gifted item and that I am not to mark as "sold at $0" on any section

Carl
Level 15

Quitclaimed Rental Property

YOu indicate that you "sold or otherwise disposed" of the property in the property profile section. But you also have to work through each individual asset to work through the disposition of each.

This is because it's perfectly possible to sell some assets (such as a plot of the land), give away some assets (such as the structure itself) and remove some assets for personal use (such as a vehicle you claimed business use on for the rental, or the new kitchen appliances that you want to keep for yourself)

 

Redan54
Level 2

Quitclaimed Rental Property

That's the page that's all worded weirdly in the program.
the screen that you're talking about that has "sold or otherwise disposed" of the property in the property profile section, actually says in the Learn More note box: "Do not check this box if the disposition was to a related party." ... because of that criteria I can't check the box "sold or disposed" on property profile coz it was gifted to a family member.... at least that's how I am understanding what the page is trying to say lol

AmeliesUncle
Level 11

Quitclaimed Rental Property

Does the property have any Passive Loss Carryovers?  If so, that is why you can't check that box.  

Redan54
Level 2

Quitclaimed Rental Property

This property does not have Passive Loss Carryovers

 

The full Note section for "I sold or disposed of this property in 2019" on property profile section (not individual asset section inside the property)

says: "Check this box if the entire interest in this property was disposed of in a fully taxable transaction.

Do not check this box if the property was part of a like-kind exchange.

Do not check this box if the disposition was to a related party.

Do not check this box if the disposition was reported using the installment method, until the final year of payment.

If this box is checked, losses are not limited by the passive activity rules."

 

This was quitclaimed to a family member/related party is what the issue is which is preventing me from marking this box. 

tagteam
Level 15

Quitclaimed Rental Property

@Redan54 Do you NOT see the following screen in the Assets/Depreciation section? Clicking the "Yes" button should solve your issue.

 

a.png

Redan54
Level 2

Quitclaimed Rental Property

yes I know about the page you're talking about that's found in the asset depreciation section later on. But regarding the property profile section a few pages before the page you are talking about for "Do Any of These Situations Apply to This Property?" where "I sold or disposed of this property in 2019" is an option to select, I am to NOT click this (right?) coz of the note info being: "Do not check this box if the disposition was to a related party." and am to hit "None of these apply" instead? And only when I'm inside each individual asset then I mark them as being disposed...right?

tagteam
Level 15

Quitclaimed Rental Property

@Redan54 Yes mark them as disposed and click the "Yes" button on the "Special Handling" screen.

Redan54
Level 2

Quitclaimed Rental Property

@Carlmaking sure I understand this correctly & there wasn't a typo lol: "All in service dates and cost basis on their 2019 tax return will match exactly all that information on your tax return. Their carry over losses (if you have any) will either match or exceed what's on the 8582 you provide them."

 

recipient put down my original date in service of the property and all assets have the original date...  nothing gets the quitclaim date, right?

 

I saw ur post over here (the property ended up being sold a few months later last year within the same year) https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/tax-on-giving-rental-... and see where u indicated regarding taxes for the recipient when it's sold: "

Bottom line is, you are the one who will pay tax on that depreciation already taken. But you will not pay it until the tax year you sell the property. There are two ways to handle this is "your" tax return.

1) your mother gifts you her original cost basis in the property along with all the prior depreciation. Your cost basis on the property will be her cost basis *MINUS* all the depreication your mom took on the property while she owned it. This means your "in service" date will be one day after your mom reported it as given to you, and for "YOU" depreication starts all over for the next 27.5 years depreciation the new lower cost basis for you over the next 27.5 years.

2) Your mother gifts you her original cost basis int he property along with all prior depreciation. Your cost basis is "EXACTLY" the same has hers, your in-service date is EXACTLY the same as hers, and your prior depreciation already taken is EXACTLY the same as hers.

Overall, I highly recommend you select option 1) above."

 

Since this was gifted and disposed of within the same year, option 2 is still the best? And not option 1 u mentioned for that person? Or when would anyone use option 1... this is mindboggling, sorries! But thank u for the explanations 🙂

Carl
Level 15

Quitclaimed Rental Property

nothing gets the quitclaim date, right?

Only the IRS Form 709 which is filed completely separately from any tax return.

Since this was gifted and disposed of within the same year, option 2 is still the best?

It doesn't matter really. Either way, the bottom line gain or loss on the sale will be the same.

When business property (which is exactly what rental property is) gets transferred from one owner to another, and the owner relinquishing the property is still living at the time, the depreciation taken by the original owner "will" *'be" *taxed" to the recipient of the property one way or the other, when the property is sold by the recipient. There is one, and only one exception that I personally am aware of.

 

When the owner of a rental property dies and the property gets transferred to their heir or other beneficiary recipient (usually named in a will), for the recipient all prior depreciation taken on the property by the deceased just "evaporates" into the neater-regions of la-la land never to be see or heard from again. The recipients cost basis on the property is the FMV of the property on the date the original owner passed away - NOT the date the recipient got control of the property, or the date their name was put on the deed. It's the date the original owner passed away. This is because in a fair number of cases it can take years to "settle the estate" of the deceased and get everything left by the deceased, distributed to their heirs or beneficiary recipients.

This is one reason why I think it's a bad idea for aging parents to pass things of value on to their children before they die. Say mom and dad purchased that rental property in 1970 for $30000 with $3000 allocated to the land, and have been renting and depreciating it the entire time. The structure value of $27,000  was fully depreciated at the end of 1997. If they "gift" it to their child before they die, the child's cost basis when they sell the property is only the $3000 value of the land, since the structure is fully depreciated. So if that property is now worth $300,000 and that's what they get for it when they sell, they're taxed on $297,000.

 

If mom and dad leave the property to them in the will and the last parent passes in 2019, the FMV of the house is $300,000 and that's their cost basis. So if they sell it for $300,000 there's no tax consequence and they can put $300,000 in their pocket "TAX" "FREE".

 

Now my parents are in their 80's. A few years ago they talked to me about gifting me one of their three rental properties purchased back in the 80's, so I'd have it before they passed. I informed them that I would much rather pay the cost of having a will prepared for them, or the cost of updating any will they may already have. Only cost me $300 for them to update their will. Both of my parents are still living and I have no desire for them to leave this earth anytime soon just because I've been willed one of their rental properties. But when that day does come, they will leave this earth knowing they left their children in a better financial position than they would have by gifting their properties to us.

 

 

Dynamic AdsDynamic Ads
v
Privacy Settings