Depreciation and basis on gifted property to a trust

Forum|Forum|3 years ago
August 5, 2022
1 reply
0 views

I'm the trustee on a trust which was gifted a rental property in the middle of December 2021. I have a copy of the 709 which has the donor's adjusted basis and a copy of the depreciation schedule for that property.

Is the basis for the trust, the donor's adjusted basis or the fair market value?

Do does the trust get to restart the depreciation schedule using the current building value or does it have to continue the donor's depreciation schedule.

Thank you for your help.

Not A Product Question

Best answer by Critter-3

The trust needs the adjusted basis of the property in the donor's hands (thus the depreciation worksheet was provided) and the FMV on the date of the gift for future use if and when it gets sold by the trust or beneficiaries.

Now the trust will use the lower value (adj basis or FMV) to start a depreciation schedule all over again using the 27.5 (or 39 year) period as required ... they cannot continue the old depreciation schedule.

Anonymous_

Employee

Hopefully, as trustee, you understand that a gift to a trust is actually a gift to the beneficiaries.

Regardless, the trust, itself, would take the donor's adjusted basis (a carryover basis) in the case of a gift.

EricBBLAuthor

Thanks for your reply. I take it that the depreciation schedule is also continued then.

What boggles my mind is that the donor uses up the lifetime gift allowance exemption to do the gift. If the scenario was a transfer upon the passing of the donor, the property would receive a step up in basis which is better for the receiver in case the property gets sold. But I guess it's better to get the gift and have the giver be alive.

NCPERSON1

@EricBBL

<<What boggles my mind is that the donor uses up the lifetime gift allowance exemption to do the gift>>

what do you mean? it's the same $12.06mm per person regardless of the timing. Whether the home is gifted now or inherited later, its value goes against the $12.06mm lifetime exemption that can pass tax free to the beneficiaries. (Let's leave the annual $16,000 gift per person to the side for simplicity)

and better to gift an asset that is expected to appreciate faster than inflation now if you truly believe you will have an estate that exceeds $12.06mm (or whatever the inflated numbrer is in the future)