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Depreciation on gifted rental property

Forum|Forum|4 years ago
April 3, 2022
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In April 2021 I was gifted a rental property from my parents. My understanding is that for calculating depreciation I can continue to use the cost basis/service date/prior depreciation from previous years. But my question is what happens with the 2021 tax year specifically since I only owned the property for 9 months of the year. Do I depreciate 75% of the amount that I would have depreciated if I owned the property the entire year? And then my parents would depreciate 25% of the amount?

Best answer by pk12_2

@pingguo38 , assuming that you are all US persons ( citizen/Green Card/ Resident for tax purposes),

1. the depreciation schedule for the property continues as if it was with the original owner ( because in case of a gift, the donee's basis is the same as the donor's basis at the time of the gift ). The claiming of the depreciation is generally based on the number of days owned by each -- donor and the donee/ recipient.

2. Absent and contravening facts, it may be easier to work as if the property was transferred on 01/01/2021 ( including rental income , expenses etc. ) --- it is cleaner and as long there is no double binning , there is no issue.

3. If the property is renting at a loss ( after accounting for depreciation), then the passive loss limitation may come into play and there could be a windfall advantage to one party ( based on the claimed transfer of ownership date ) -- IRS would object to that, if and only if the facts are diff.

Does this help? Is there more I can do for you ?

pk

P

pk12_2Answer

Employee

@pingguo38 , assuming that you are all US persons ( citizen/Green Card/ Resident for tax purposes),

1. the depreciation schedule for the property continues as if it was with the original owner ( because in case of a gift, the donee's basis is the same as the donor's basis at the time of the gift ). The claiming of the depreciation is generally based on the number of days owned by each -- donor and the donee/ recipient.

2. Absent and contravening facts, it may be easier to work as if the property was transferred on 01/01/2021 ( including rental income , expenses etc. ) --- it is cleaner and as long there is no double binning , there is no issue.

3. If the property is renting at a loss ( after accounting for depreciation), then the passive loss limitation may come into play and there could be a windfall advantage to one party ( based on the claimed transfer of ownership date ) -- IRS would object to that, if and only if the facts are diff.

Does this help? Is there more I can do for you ?

pk

P

pingguo38Author

Thanks, this answers my question. Treating the property as being transferred 1/1/2021 is not an option for our situation, but we will assign the percentage of depreciation based on the days owned.