In 5/10/2019 she transferred the condo as gift to me. FMV on 5/10/2019 was $200K.
Her tenant switched to sending the rent to me from 6/01/2019.
My mom was citizen and resident of mexico so did not need to do US tax returns and never claimed depreciation nor had to file 709 gift tax return.
Now my Q is: I have set up a depreciation schedule in TT
A) What will be my placed in service date? her original 1/1/2006 or date when tenant started giving me rent 6/1/2019
B) What will be my Depreciation method? I believe for Foreign property placed in service before 1/1/2018 ADS 40years applies and if placed in service after 1/1/2018 30years.
C) Do I start a New 40yr or 30yr depreciation schedule from my placed in service date,
OR will it be a continuation from her date of 1/1/2006 and I lose all the theoretical depreciation which she could have taken from 1/1/2006 to 6/1/2019?
D) What will be my starting basis? (i) her original cost i.e $30K (building+registration cost) - accumulated depreciation using ADS 40years OR (ii) $30K (building+registration cost) OR (iii) FMV $200K on date of gift
Thank you so much.
@nikki20201 , did your mother actually transfer title ( Escritura ) to you or is it just an understanding/ declaration. If the title has been transferred -- then your basis in the property is her basis ( in this case acquisition basis + any improvements she may have made during the intervening years. If there is no "escritura" then you have to recognize the rental income but the basis will be FMV at her passing.
Start of service ( if the property is in your name ) will be the day you took possession of the property
Do you need more help on this ? If so please answer if you have the escritura in place and in your name--yes ?
@nikki20201 oh dear -- this means your basis is her basis, start of depreciation is from the date of the escritura and it also means that there is going to be large capital gain when you dispose of the property because your depreciation would reduce the basis ( adjusted basis ) and the price of property going up ( as evidence your mother bought it for 28K and it is now 200K from your post ). On top of that the depreciation ( whether recognized or not ) caused gain must be taxed as ordinary income i.e. at your marginal rate. Perhaps considering these future issues you may want to consult a MX lawyer ( a notario ) if the gift can be returned because as inheritance you would be much better tax wise--- IMHO
Also note that gifts of US$100,000 or more from a foreign person must be reported to the IRS on form 3520 --- it is not tax event though
pk thank you for replying.
# It cannot be returned because she transferred in may 2019 and passed away in early 2020.
# thank you for telling me about 3520 i will file it
# I understand whenever i sell my basis will be her basis of 28K and also all the depreciation accumulated till sell date, will be reduced from the cost.
# ok i understand for depreciation my start date will be May 2019
# My start amount will be 28k? (do I need to not worry about theoretical depreciation between her purchase date and transfer to me? (ofcourse she never depreciated)
# is her registration cost of $2K added to building cost and depreciated or added to land cost?
@nikki20201 , I am really sorry for your loss - I know how it must hurt. I pray for her soul.
Your basis is $28K and the transfer tax could be bakes into the basis. You do not recognize any past and theoretical depreciation because none would have been allowed -- it was not your property till after registration of the escritura.
Is there more I can do for you ?