I bought a $500,000 property with another owner in Joint Tenancy.
I assume that since acquisition, each of you were reporting your 50% of the income/expenses on SCH E as a part of your personal 1040 tax return, and not on a 1065 Partnership return. If that assumption is wrong, it matters. So let me know.
Basically, when the other person did the quit claim, they gifted their 50% of the property to you. But you got more than just the property with that gift. They also gifted to you all prior depreciation they had taken on the property.
The property was only worth $250,000 at the quit claim.
That doesn't matter. Also included as a part of the gift, is the giver's original cost basis. You don't get a step-up or down in basis with a gift. You can't change that.
If, on your SCH E in your personal tax return you have been claiming 100% ownership but only reporting 50% of the income/expenses in the past, all you have to do is double your costs basis on everything in the Assets/Depreciation section. For example, on the property itself simply double the amounts in the COST box, the LAND box and the PRIOR DEPREC box and press on. That gives you the ex-partner's gift of their cost basis and all of their prior depreciation. It's the simplest and easiest way to do this.
Now if you've been reporting this on SCH E and showing only 50% ownership in the property and elected to enter total amounts and let the program "do the splits" for you, then you need to do things a bit differently. I can help with that, and it's really not as difficult as it may seem. (actually, "my way" of dealing with it is rather simple.)
So they way you "accept" this gift is to work through the property asset in the Assets/Depreciation section.
