Where do I report the disposition of rental property if gifted to son?

[KHoskins]

I am using Turbo Tax Premier.

I gifted a rental property to my son in November 2022.

When asked if SOLD or dispositionsed this in 2022.  Turbo Tax instructs to state NO if SOLD or dispositioned to a relative.

I don't see where the loop gets closed.  Please advise.

I am completing a Gift Tax Form 709 that will be mailed in separately from my return, but seems something is missing.

[Cynthiad66]

Nothing is missing.  You seem to be on track.  This gift is not a taxable transaction for you.

You don't need to report the gift of a rental property on your income tax return because there wasn't a taxable event (i.e. gain or loss on sale or disposition). You just need to report it on Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return).

Actually, you did everything right.  On the asset entry worksheets, in the disposal section, just enter the date it was disposed (gifted), with no sales price, that will remove it from the return as of that date with no "sale".

Be sure to printout the Depreciation schedule for your son, he will need that to setup the rental on his return.

If you need additional answers, please return to this form.

[KHoskins]

Thank you Cynthia.  

When I go to the line 20 of the asset entry worksheet line 20 and enter date dispositioned (11/22/22) and on line 21, I enter zero for sales price, it shows a large loss on lines 35 and 36.

Form 4797; Sale of Business Property, Part 1, automatically fills and shows a loss.

I should NOT be taking loss. My son will live in gifted property as his primary residence. If he sells after owning and living there for 2 plus years, he will take gains from my adjusted cost basis.

I just can’t make Turbo tax input correctly.

[DianeW777]

Here's how to make it correct for your situation. Follow the instructions next for TurboTax to treat it appropriately on your tax return.

When you are in the rental property you must indicate you converted it to personal use and enter the date.  This will eliminate depreciation on the rental property as of the date of conversion which will be the date you gifted it to your son,  This will also eliminate the sale on Form 4797, which did not occur.

Since you gifted this to your son, the cost basis in your hands will be the same in his hands as well (cost less depreciation for both the building and any other assets that belong to it).  As indicated by @Cynthiad66, a gift tax return is required to be prepared if the gift is greater than $16,000.  This will be very important for your son.

• IRS FAQs on Gift Taxes

[KHoskins]

Thank you Diana.  

This helped, but Form 4797 is automatically filling out and therefore showing a loss on the property and giving me a larger return than I should get.

it is not detecting errors.

Any suggestions on how to override auto population of form 4797?

[DianeW777]

Yes, let's delete that form and it should not come back if you answered the questions as provided earlier.

You'll need to delete the form: 

• If you're using TurboTax Online software and need to delete a form, click here.
• If you're using TurboTax CD\Download software and need to delete a form, click here. 

Just to be extra cautious you can also delete cookies and cache before you open TurboTax after you delete the form.  It handles many issues that seem nonsensical on a regular basis. 

• Close your TurboTax return first.

Watch to be sure you are selecting 'all time' as example.  Do not use selections like 'last hour' for those browsers that give  you options.

• How to clear your cache

[KHoskins]

But under the “Special Disposition” tab,

it tells me to only the date of disposition if I gave asset away.

Then states you will enter your sales information later in the Business Income/Sale of Business Property.

That section is already auto filled as loss. ??

[DianeW777]

The details next should allow you to finish your tax return. This will walk you through the process to remove this as a rental property from your return.  For 2022 you will still show some activity, then next year you should delete it, if it imports. 

When you are in the rental activity for 2022, you must select the 'Assets' section, then in each asset you must go to the screen titled 'Tell Us More About This Rental Asset'. 

1. Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....' 
2. Next enter the date you stopped using the asset for rental purposes. And answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
3. Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.

You may see some depreciation expense which will be the partial year amount.  For the period of the year it was available for rent, you may have some expenses which are allowed for that open period.  

Keep all of these records because you will need them when and if you sell this home. All depreciation will be recaptured at that time, regardless of how long you hold the property for personal use. The records are necessary until you completely dispose of or sell the property.

[KHoskins]

Thank you Diane.  I am taking a break and will take your recent advice when I get back to working on my return.  Thanks for all of your help.  Much appreciated.

[Mike9241]

@KHoskins leave the sales price blank not zero.