Gifting foreign rental property and recapture tax

[tax25]

Hi, what happens to recapture tax if a resident of US has foreign rental property that is gifted to a relative in that foreign country?  Does the recapture tax have to be paid by the donor?

[MaryK4]

If a U.S. resident has a foreign rental property that is disposed of by gift, he would have to report as a Sale/Disposition of Business Property.  Any depreciation would have to be accounted for with the disposition so the donor would pay any tax. 

[M-MTax]

If a U.S. resident has a foreign rental property that is disposed of by gift, he would have to report as a Sale/Disposition of Business Property.  Any depreciation would have to be accounted for with the disposition so the donor would pay any tax. 

Do you have any authority for this? A gift is not a "sale or disposition" that would be a taxable event. The U.S. resident would have to file a gift tax return BUT without a "sale" there would be no tax. Not sure how any of this changes just because the gift is property in a foreign country.

[M-MTax]

@MaryK4????????????????????

[DaveF1006]

@M-MTax @tax25   According to this IRS link, you may need to file a Form 3520, however this is not a taxable event. Please view the link for further details.

[M-MTax]

@martinmarks @tax25   According to this IRS link, you may need to file a Form 3520, however this is not a taxable event. Please view the link for further details.

@DaveF1006 I don't think that's even right. This is a U.S. resident gifting foreign property so I think it would be form 709.....none of the conditions under Who Must File form 3520 apply.

[MaryK4]

CORRECTION TO ORIGINAL ANSWER

Gifts

If you make a gift of depreciable personal property or real property, you do not have to report income on the transaction. However, if the person who receives it (donee) sells or otherwise disposes of the property in a disposition subject to recapture, the donee must take into account the depreciation you deducted in figuring the gain to be reported as ordinary income.  Publication 544 (2020), Sales and Other Dispositions of Assets

The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift. Gift Tax

@tax25

[DaveF1006]

@M-MTax @tax25  

Yes, you are absolutely correct assuming the transferrer is not a responsible party for reporting a reportable event that occurred during the current tax year, or if they are not a U.S. person who transferred property (including cash) to a related foreign trust (or a person related to the trust) in exchange for an obligation in which they hold a qualified obligation from that trust that is currently outstanding.

If this is not the case, then the US person will file form 709. I guess it pays to ask clarifying questions.