how to report on turbo tax a rental property gifted by parents

Forum|Forum|3 years ago
March 18, 2023
1 reply
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Hello,

My parents gifted me a rental property for $1. They have had this property since 2004. When entering the assets/depreciation section in turbo tax, under "placed in service" for this rental property, should I be entering the date the property was transferred to me, or should that date be when my parents acquired the property back in 2004?

For the cost, would it be the fair market value or the amount my parents paid for the property (whichever is lower) and subtract the land value from this amount?

For the land value, the city records shows the land value fluctuating from year to year. Do I enter the land value posted for the year this property was transferred to me?

thank you

Carl11_2

Employee

If it's a gift, then the giver of said gift should be filing IRS Form 709 - Gift Tax Return, with the IRS. Note that nobody will pay taxes on the gift. It's just a legally mandated reporting requirement for any gifts given in a single tax year that exceed a value of $16,000.

When they gifted you the property, they gifted you everything; original cost basis (including any property improvements), as well as depreciation already taken. Since this is not a reportable/taxable transaction on anyone's tax return, you'll use their original cost basis as well as their original in-service date for the property and any property improvements, and the depreciation they have already taken on the property is also transferred to you.

under "placed in service" for this rental property, should I be entering the date the property was transferred to me,

No. You'll use the same date your parent's placed it in service. Doesn't matter that it may have been years ago.

For the cost, would it be the fair market value or the amount my parents paid for the property

Yes, which is to say, it will be the same cost basis as your parent's used.

For the land value, the city records shows the land value fluctuating from year to year

Assessed tax value is irrelevant, and is not reported on a tax return at all. It will be the same as what your parents used.

gman11Author

So this is another issue entirely but the CPA my parents used NEVER depreciated the property for them and they didn't know any better. I do my own taxes and realized that they have been getting ripped off. So the last 2 question I had with cost and land value is still a bit confusing to me.

Carl11_2

Employee

Check the prior year tax return for IRS Form 4562, as that will show the depreciation for that tax year. If you have that form and there's an amount on line 19h, then the property has most likely been depreciated as required.

I assume you are referring to the screen that asks for COST and COST OF LAND.

COST - What you paid for the property when it was originally purchased.

COST OF LAND - The amount in the COST box that you are allocating to the land.

For example, if you paid $100,000 for the entire property, the COST would be $100,000

If the value of the land is $30,000, then you enter $30,000 in the COST OF LAND box.

After that, the program (not you) will subtract COST OF LAND from the amount in COST to arrive at the value of the structure to be depreciated. Using my numbers above, the program would subtract $30,000 from $100,000 to arrive at a structure value of $70,000. The $70,000 is what would be depreciated over the next 27.5 years.