The title of a rental property was transferred to my daughter and my son

Forum|Forum|2 years ago
April 10, 2024
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We have a rental property with me, my daughter, and my son on the title before 2021. During a refinance in later 2021, I removed my name from the tile so the property is owned by my daughter and my son, who were already on the title. I realize this is gift from me to them. How do I report this in F709? Thank you for your help!

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Best answer by KrisD15

The gift to each child would be 1/2 your "ADJUSTED" basis in the property.

Your adjusted basis is your cost or Fair Market value when the rental was placed in service (whichever is less) plus any improvements less depreciation taken (or could/should have been taken).

(Your cost would be 1/3 the original cost or Fair Market value when the rental was placed in service (whichever was less)

So if you paid 300,000 TOTAL for the building and land, (100,000 cost for each) took 90,000 TOTAL in depreciation (30,000 each) your gift to each child would be 35,000 (100,000 - 30,000 = 70,000 / 2 = 35,000.

Each child would now have adjusted basis of 105,000 and prior depreciation taken in the amount of 45,000.

If they immediately sold for 400,000, they would each have 45,000 depreciation recapture (taxed as ordinary income) and 50,000 Long-Term Capital Gain

The kids each assumes the depreciation from your portion, therefore they will claim deprecation recapture for ALL depreciation on the rental. (Had they inherited your portion, their basis would be stepped-up to Fair Market Value and your portion of depreciation would not carry forward to them.)

KrisD15Answer

The gift to each child would be 1/2 your "ADJUSTED" basis in the property.

Your adjusted basis is your cost or Fair Market value when the rental was placed in service (whichever is less) plus any improvements less depreciation taken (or could/should have been taken).

(Your cost would be 1/3 the original cost or Fair Market value when the rental was placed in service (whichever was less)

Each child would now have adjusted basis of 105,000 and prior depreciation taken in the amount of 45,000.

If they immediately sold for 400,000, they would each have 45,000 depreciation recapture (taxed as ordinary income) and 50,000 Long-Term Capital Gain

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gr3849Author

@KrisD15 Thank you so much for your answer. It is very clear for all parts. But I would like to get deeper about the depreciation part. After they hold the new title, they continued with the original depreciation schedule. Should I take the previous depreciation into account when I file the F709 I have transferred the ownership togather with the depreciation to them?

A somewhat related but different aspect of the situation here is this. Since the property was purchased in 2016, just my daughter and my son, only two of them were handling all the income, expenses, and take a 50% share each for the rental property for tax returns in the past years. We consulted through the phone call with a TurboTax expert in the first year when we filed the tax return. The tax expert's opinion was that it is legal to handle it this way since financially I was not involved with income and expenses of the rental property. Your opinion will be greatly appreciated. Thanks

mglauner

Yes, your son and daughter can each report 50% of the rental income and expenses on their returns.

If they entered their Cost Basis in the Property Profile and Asset/Depreciation sections as their 50% amount, depreciation will be calculated for their share correctly, as well as other expenses.

@gr3849