How do I calculate and enter depreciation schedule for a property acquired as partial sale/partial gift?

[lnk-fr]

If I obtained a rental property from a parent as partial gift/partial sale how do I calculate and enter my cost basis and depreciation schedule in Turbotax? There were many line items for improvements on depreciation schedule as well, not just structure and land. 

I'm currently using the offline version of Turbo Tax and the first place I"m stuck on is: "Tell us About this Rental Asset" then there's a field input for Cost and Cost of Land. 

Cost: (the amount you paid for it, plus freight, installation, sales, tax, legal fees. 

Cost of Land: (If the cost of this property includes the land value, enter the land value here)

[M-MTax]

Get a tax professional because this can get complicated. Here is the Reg:  1.1015-4 

     Your basis is the greater of the amount you paid your parent OR the adjusted basis for the property at the time of the transfer. This can get complicated when the property is and was subject to depreciation.

[lnk-fr]

@M-MTax  Hi. I will try and find a professional but want to learn how it works if possible. 

It had already been a rental, 10 years prior to the transfer and has remained a rental since I became the owner.
Would l use the appraised figure to calculate which portion is attributed to structure vs land, and then carry over the depreciation schedule for the structure of 15 years and continue as if the 16th year on my return? 

example: To figure out what portion is structure and what is land, I would use the appraised value and apply this new % to my new basis. i.e. if appraisor said land was 80% and structure was 20%, I apply 20% to my adjusted cost basis.

 Reg: 1.1015-4  isn't crystal clear on this.

Next, cpa wrote to us I should use (example figure) 500K as basis on my return. (400K gifted to me and 100K I paid)

Below is how mom's gift tax return was filed:

Total cost basis before adjustment: 600K
Accumulated depreciation : -100K
How much I paid: -100K

Cost basis on mother's gift tax return: 600K-100K-100K=400K

Applying the % from my reply above:

500K*20%=100,000 for structure and the rest is land.

since i'm on my 11th year, I would depreciate as if there is 27.5-15=12.5 years left

100,000/12.5=$8000
depreciation on structure every year for 12.5 more years

am I on the right path?

[Mike9241]

your basis land vs building is generally the same as the donor's. in other words, you step in the donor's shoes but paying that $100K could mean that $500K retains its original basis land vs building (500/600 times her cost basis for building with the rest to land) and you use appraised values to split the $100K. you're responsible for recapture of depreciation she took if property sold. the question is how much. so it might be that the building portion of that $500k is depreciated using the remaining life at the time of the gift and you start depreciating the building portion of that $100K using 27.5 years.   consult a pro also Turbotax may not be able to properly handle the depreciable portion of the property.  

you did not mention fair value of the gift, if less then above does not apply

[M-MTax]

1.1015-4 refers to unadjusted basis and your mother's basis was greater than what you paid at the time of the transfer. So you would use your mother's basis.....mike9241 already told you that. But that basis needs to be adjusted by the total depreciation your mother took.

[lnk-fr]

@M-MTax There have been some who tell me that I would use the adjusted basis, but would apply the a new percentage for the building/land according to my appraisal. And continue with the existing depreciation schedule—i.e., if my mom started renting out the property in 2013, then for the 2021 tax year, I would continue depreciating it as if it were my 9th year on a 27.5-year schedule. 

This causes some issues:

1. By applying a new structure/land % to my adjust basis means I'm not actually carrying over my mom's depreciation any more. For whatever reason, the appraisal valued the structure extremely low compared to the land compared to when my mother owned it.

2. all of the improvements we made over the years such as rebuilding walls and remodels used to be able to depreciate 100%, by doing this would go from being able to depreciate 100% to only 16% of it. 

applying the above method, while my mom was getting 19K depreciated each year, my draft calculations shows that I would only be able to depreciate $6300 - a 3x difference. 


I have heard others tell me to:

Split the basis into two parts: one for the gift portion (where I continue with my mother’s original depreciation schedule) and one for the purchased portion (where I would start a new 27.5-year depreciation schedule for just that part).