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Level 1

depreciation on gift rental property

My mom want to transfer her rental property to me so I can manage it and also receive the rental income. To my understanding, this is considered her gift to me, and I need to file tax for the rental income on schedule E and deduct the expenses.

I have question on the depreciation. Will I continue to use my mom's cost basis and carry over her depreciation for the remaining years as well? Or I need to figure out the new cost basis at the time of transfer and if so, do I need to deduct her accumulated depreciation to figure out the new cost basis for depreciation.

As for my mom, will she just stop claiming this property on her tax return or is there extra step she needs to do on her tax return?

Thank you in advance for your advice and opinion.

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Highlighted
Level 15

depreciation on gift rental property

To my understanding, this is considered her gift to me,

That is correct. Your mother (not you) needs to file IRS Form 709 - Gift Tax return. Nobody will pay taxes on the gift. But the reporting and filing requirement to report it is required, since her gift is more than $15,000.

 

and I need to file tax for the rental income on schedule E and deduct the expenses.

Correct. You will report only the income that "you" receive, and only the expenses that "you" pay. Your mother will report all income received and expenses she paid prior to the transfer. Understand that TurboTax does not include or support the form 709, as it's filed completely separate from income taxes and mailed to a completely different address. This form can be complicated and I would highly suggest your mother seek professional help for this.

 

 Will I continue to use my mom's cost basis and carry over her depreciation for the remaining years as well?

Yes. When rental property is given as a gift, "everything" is given. Therefore your in service date will be the original date your mother placed the property in service. You will also show all prior depreciation taken by your mother. Make "sure" you get the depreciation right too. Many screw that up. To get that correct figure you have to add together the amounts in the "prior years depr" coloum and "current year depr" column. The sum will be the "prior year's depreciation aleady taken" that you will report on your tax return.

Or I need to figure out the new cost basis at the time of transfer and if so, do I need to deduct her accumulated depreciation to figure out the new cost basis for depreciation.

As for my mom, will she just stop claiming this property on her tax return or is there extra step she needs to do on her tax return?

She will indicate the property was "sold or otherwise disposed of". THen she must work through each asset individually, one at a time to show it's disposition. For each asset she will be asked "Special handling required?" She must select YES on those screens. Otherwise, the program assumes she sold the property and will "insist" on sales price information.

So if this is occurring in 2019, that means the 2019 tax return will be the last year she will show the property on her tax return, and the first year you will show it on  your tax return.

When the times comes, if you need help with the details please post back. I've been doing "the rental thing" for 30 plus years now and almost have this stuff figured out to a tee. (almost!)

Here's some guidance for your mother's tax return.

Reporting the Gifting of Rental Property

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2018". Select it. After you select the "I sold or otherwise disposed of this property in 2018" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were given away, not sold).

 

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed. For each asset you will have a screen that presents, "Special Handling Required?" You "must" select yes. If you select no, then you will be required to enter sales information.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you gave your vehicle as a part of this gift.

When done with your tax return entirely, print out a copy of EVERYTHING on paper and keep it. Don't print just the "forms required for filing" or the "forms to keep for your records". You need to print everything. It will not be uncommon for the printout to be in excess of 100 pages either.

If the above is done correct, then next year when you import from TurboTax 2019 into TurboTax 2020, the rental should "not" be imported. If it is then let as know as their "could" be an issue with you having incorrectly reported this gift, or did not "completely" report your disposition of this property.  More than likely there's no issue really. But better safe than sorry. That's why you print everything, so if needed we can double check to confirm and find any issues.

 

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7 Replies
Highlighted
Level 15

depreciation on gift rental property


@taxquestions2019 wrote:

Will I continue to use my mom's cost basis and carry over her depreciation for the remaining years as well?


Yes, everything is carried over from the cost basis to accumulated depreciation to the holding period.

 

 


@taxquestions2019 wrote:

As for my mom, will she just stop claiming this property on her tax return or is there extra step she needs to do on her tax return?


Your mom needs to indicate (in TurboTax) that she disposed of the property (in this instance, given away) to stop depreciation of the asset(s).

 

Further, your mom needs to file a gift tax return (Form 709) since in all likelihood the property has a fair market value in excess of the annual exclusion amount ($15,000). Although she will probably not owe any gift tax, she should consider having the return prepared by a tax professional.

 

See https://www.irs.gov/instructions/i709#idm140554828371904

 

Regardless, you and your mom might want to consult, in-person, with a tax or estate planning professional to consider options other than an outright gift of the property,

Highlighted
Level 15

depreciation on gift rental property

your basis is the lower of FMV on date of gift or her basis under IRC 1015

However, if you sell or otherwise disposes of the property in a disposition subject to recapture, the you must take into account the depreciation she deducted in figuring the gain to be reported as ordinary income.

 

your holding period begins with her acquisition

 

if the value is more than $15,000 she must file a gift tax return.   

 

neither of you pay income taxes on the gift

Level 15

depreciation on gift rental property

The basis is a carryover basis regardless of fair market value.

 

The lesser of fair market value or the basis in the hands of the donor as specified in Section 1015 only comes into play for purposes of figuring a loss upon disposition. 

Highlighted
Level 15

depreciation on gift rental property

To my understanding, this is considered her gift to me,

That is correct. Your mother (not you) needs to file IRS Form 709 - Gift Tax return. Nobody will pay taxes on the gift. But the reporting and filing requirement to report it is required, since her gift is more than $15,000.

 

and I need to file tax for the rental income on schedule E and deduct the expenses.

Correct. You will report only the income that "you" receive, and only the expenses that "you" pay. Your mother will report all income received and expenses she paid prior to the transfer. Understand that TurboTax does not include or support the form 709, as it's filed completely separate from income taxes and mailed to a completely different address. This form can be complicated and I would highly suggest your mother seek professional help for this.

 

 Will I continue to use my mom's cost basis and carry over her depreciation for the remaining years as well?

Yes. When rental property is given as a gift, "everything" is given. Therefore your in service date will be the original date your mother placed the property in service. You will also show all prior depreciation taken by your mother. Make "sure" you get the depreciation right too. Many screw that up. To get that correct figure you have to add together the amounts in the "prior years depr" coloum and "current year depr" column. The sum will be the "prior year's depreciation aleady taken" that you will report on your tax return.

Or I need to figure out the new cost basis at the time of transfer and if so, do I need to deduct her accumulated depreciation to figure out the new cost basis for depreciation.

As for my mom, will she just stop claiming this property on her tax return or is there extra step she needs to do on her tax return?

She will indicate the property was "sold or otherwise disposed of". THen she must work through each asset individually, one at a time to show it's disposition. For each asset she will be asked "Special handling required?" She must select YES on those screens. Otherwise, the program assumes she sold the property and will "insist" on sales price information.

So if this is occurring in 2019, that means the 2019 tax return will be the last year she will show the property on her tax return, and the first year you will show it on  your tax return.

When the times comes, if you need help with the details please post back. I've been doing "the rental thing" for 30 plus years now and almost have this stuff figured out to a tee. (almost!)

Here's some guidance for your mother's tax return.

Reporting the Gifting of Rental Property

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will have a selection on it for "I sold or otherwise disposed of this property in  2018". Select it. After you select the "I sold or otherwise disposed of this property in 2018" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report its disposition (in your case, all your rental assets were given away, not sold).

 

Basically, when working through an asset you select the option for "I stopped using this asset in 2019" and go from there. Note that you MUST do this for EACH AND EVERY asset listed. For each asset you will have a screen that presents, "Special Handling Required?" You "must" select yes. If you select no, then you will be required to enter sales information.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you gave your vehicle as a part of this gift.

When done with your tax return entirely, print out a copy of EVERYTHING on paper and keep it. Don't print just the "forms required for filing" or the "forms to keep for your records". You need to print everything. It will not be uncommon for the printout to be in excess of 100 pages either.

If the above is done correct, then next year when you import from TurboTax 2019 into TurboTax 2020, the rental should "not" be imported. If it is then let as know as their "could" be an issue with you having incorrectly reported this gift, or did not "completely" report your disposition of this property.  More than likely there's no issue really. But better safe than sorry. That's why you print everything, so if needed we can double check to confirm and find any issues.

 

View solution in original post

Highlighted
Level 10

depreciation on gift rental property

To emphasize @tagteam response, it is therefore necessary to obtain the FMV at the date of the gift.  Trying to determine this years down the road, when determining gain or loss, will not be an easy task for the taxpayer (who has the burden of proof).

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

depreciation on gift rental property

@Rick19744 is absolutely correct; you need to determine the FMV as of the date of the gift.

 

This is important with respect to any future disposition and actually needs to be determined now for the purposes of preparing the gift tax return (Form 709). Again, seek professional assistance.

Highlighted
Level 1

depreciation on gift rental property

This is very helpful.  Thank you so much for all your advice and guidance.