What form do you file if you give a former rental house to your child for less than full value? It’s worth $500,000 plus.

[Critter-3 · Accepted solution]

You will file a form 709 for the gift and TT doesn't support that form ... you may wish to seek local professional assistance with this situation especially since the child needs to know your tax basis and the fair market value on the date of the gift for when they sell it or rent it.

"Gift Tax" is somewhat of a misnomer.  Even though a gift tax return may be required, very few people ever actually pay federal gift tax. The purpose of the gift tax return is usually only to document a reduction in the allowable estate tax exemption.

You will have to file a gift tax return to report the gifts, but you will not actually have to pay any gift tax unless you have made gifts totaling over $11.180 million over your lifetime.

A gift tax return is separate from income tax. It does not go on her income tax return. TurboTax cannot be used to prepare a gift tax return.

See https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/...

[xmasbaby0]

I think you need to clarify "GIVE a former rental house.... for less than full value..."  

Did you GIVE the house as a gift--completely--or sell it to the child for less than it is worth?  Why did you mention "full value?"

[Carl]

You either give as a gift, or you sell. One or the other. If you are receiving compensation of any type in any amount from the child, then you aren't giving anything. You're selling it. In your case, you "Might" be selling it for less than FMV. But what matters is if you're selling it for less than you paid for it. Do understand that when selling property to a family member at a loss, your loss is not deductible. There is also the possibility that with the sale, there could be a portion of value that you are "in fact" gifting to the child. That would be reported to the IRS separately outside of your taxes, and gift reporting is not supported by TurboTax. That's why you should seek the services of a real estate professional.

You really need to seek the services of a real estate professional to ensure all your bases are covered. This is really important if your state also taxes personal income.

[Hal_Al]

Example 1

You bought the house for $100,000 in 2000.  You sold it to your son  in 2020 for $220,000. Over the years you claimed $50,000 in depreciation.

You have a tax reportable sale with a capital gain of $120,000 plus $50,000 in depreciation recapture ($170,000 total reportable income).  This goes on your form 1040 Income Tax return

You effectively made a gift of equity to you son of $280,000 ($500,000 -$220,000) which needs to be reported on form 709 gift Tax return.

Your son’s cost basis is $220,000.

Example 2

Your give the house to your son outright.  Your report a $500,000 gift on your gift tax return and nothing on your income tax return.

Your son’s cost basis is $100,000 (your original cost basis).  But he also keeps track of the $50,000 depreciation (which transferred to him with the gift).  When sells the house, the $50,000 depreciation recapture is taxed separately from the rest of the capital gain.  That assumes he has a net gain. If the sale results in a loss (unlikely), he uses the $500,000 value as his basis

[fanfare]

In view of your transaction, you (and/or your child) should have a professional written appraisal done asap.