Basis on gifted rental property

[LL65]

Hello! My mother in law gifted my husband a rental property this past year. He then sold it 6 weeks later. Her tax attorney reported this on Form 4797, Part l. 

I am confused as to what basis I should use to report this on our taxes. Would I use her adjusted basis on Form 4797, Part l, column f? Or gross selling price in column a? She did receive a loss on this. 

As far as I know I don't think a gift tax form was used. I am so confused trying to figure the basis in this property. 

[Anonymous_]

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@LL65 wrote:

Hello! My mother in law gifted my husband a rental property this past year. He then sold it 6 weeks later. Her tax attorney reported this on Form 4797, Part l. 

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Have you contacted her tax attorney and inquired as to why he reported a gift on Form 4797 which is used for the sale of business property?

Was Form 4797 use (by her tax attorney) for the 2022 tax year to report the sale on your mother-in-law's 2022 income tax return? Either that is the case or the attorney erred in reporting an actual gift on Form 4797.

This begs the question as to whether your husband ever took title to the property and sold it or if your mother-in-law sold the property and then gifted the proceeds to your husband.

[LL65]

I have not contacted her attorney. From what I understand he is a bit of a jerk so I am hoping to resolve this without his help. I can suggest to my mother in law that she ask him.  Any advice on the basis?

[LL65]

The home was quit claim deeded to my husband, who then sold it. And yes, this was for the 2022 taxes she filed.

[Cynthiad66]

To figure out the basis of property received as a gift, you must know three amounts: 

• The donor's adjusted basis just before the donor made the gift. 
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• The fair market value (FMV) of the property at the time the donor made the gift
• Whether Gift Taxes were paid.

If the FMV of the property at the time the donor made the gift is less than the donor's adjusted basis, your adjusted basis depends on whether you have a gain or loss when you dispose of the property.

• Your adjusted basis for figuring a gain is the donor's adjusted basis just before the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.
• Your adjusted basis for figuring a loss is the FMV of the property at the time the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.
• Note: If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV of the property at the time the donor made the gift is equal to or greater than the donor's adjusted basis, your adjusted basis is the donor's adjusted basis just before the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.

• If the donor paid a gift tax on the gift and made the gift after 1976, increase your basis by the gift tax paid on the net increase in value. To figure out the net increase in value or for other information on gifts received before 1977, see Publication 551, Basis of Assets.

For additional information, see:  Basis of Gifted Property

[Anonymous_]

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@LL65 wrote:

The home was quit claim deeded to my husband, who then sold it. And yes, this was for the 2022 taxes she filed.

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Then, hopefully, the attorney did not report or, more accurately, misreport the gift as a sale on your mother-in-law's income tax return.

Regardless, a gift tax return (Form 709) should have been filed for your mother-in-law and that return would contain the fair market value as well as her adjusted basis.

[LL65]

Thank you! I have decided to talk to the attorney on behalf of my mother in law and myself. She owes several thousand in taxes from gifting three rental homes to family members and can't understand why she owes taxes. My hours of research and reading haven't found a reason either.