My mom gave me 1/2 of a rental property and I am trying to set up the depreciation to mirror hers but I get $0 when she has $360. How do I adjust?

Forum|Forum|3 years ago
June 25, 2022
2 replies
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I need to claim 1/2 of the depreciation for improvements she made in the past

TurboTax Live Self Employed

Best answer by AmeliesUncle

Your depreciation will NOT mirror her depreciation.

Here is a simplified example:

She bought the property for $100,000. Value of land was $20,000. Over the years, she claimed $30,000 of depreciation. Her Basis is now $70,000 ($20,000 for the land, and $50,000 for the building). Her "placed in service" date is the date she made the building available to rent.

She then gave you a gift of 50% of the rental property. Your Basis for depreciation would likely be $35,000 ($10,000 for the land, and $25,000 for the building). You use the date you received the gift as the "placed in service" date.

As a side note, your mom is likely required to file a Gift Tax return for her gift to you.

AmeliesUncleAnswer

Your depreciation will NOT mirror her depreciation.

Here is a simplified example:

As a side note, your mom is likely required to file a Gift Tax return for her gift to you.

Carl11_2

Employee

@AmeliesUncle help me out with understanding this please.

It has been my understanding and interpretation of the pubs (can't name the specific pubs at this time) that when you gift a rental property, you gift everything. That includes all carry over losses as well as depreciation. So with this gift of 1/2 the property, doesn't it all get split right down the middle and the giver basically "gives" the recipient half of everything? That would mean the recipient would use the same in-service date with 1/2 of the giver's cost basis. That would automatically figure the prior year's depreciation.

Take note that when the recipient enters it into TTX for the first time, one question asks how they acquired the property. The selection would then be "I received this rental as a gift" and then follow the prompts/screens from there.

@fullera I am highly confident that the value of your half of the property is more than $16,000. So your mother would be required to file IRS Form 709 - Gift Tax Return. Do not let the name of that form concern you. There will not be any tax paid on this gift by anyone, unless the gift is worth more than $11.7 Million ($12.06 Million if gift given in 2022) which I seriously doubt. The gift tax return form 709 is merely a reporting requirement that the giver is required to complete.

TurboTax does not support IRS Form 709. However, the giver can get a blank form at https://www.irs.gov/pub/irs-pdf/f709.pdf , file it out and mail it to the address in the instructions. Simple and done.

Anonymous_

Employee

A donor does not "gift" accumulated depreciation, as such. Rather, the donee's basis for depreciation is the donor's adjusted basis at the time of the gift, which in @AmeliesUncle's example is $35,000.

To put it differently, the donee does not take any part of the donor's previously claimed depreciation deductions and the placed-in service date is the date of the gift.

For federal gift tax purposes (i.e., filing Form 709), the value of the gift is its fair market value on the date of the gift.

AmeliesUncle

@Anonymous_ wrote:
A donor does not "gift" accumulated depreciation, as such. Rather, the donee's basis for depreciation is the donor's adjusted basis at the time of the gift, which in @AmeliesUncle's example is $35,000.

To put it differently, the donee does not take any part of the donor's previously claimed depreciation deductions and the placed-in service date is the date of the gift.

Bas on my memory (which isn't great), my opinion is the the depreciation is gifted as well, but I think the law is mostly silent about it. In my opinion, when calculating a gain or loss from the sale, the recipient in the example above should be use $50,000 ($10,000 for land and $40,000 for building) with $15,000 of prior depreciation (which will be subject to §1250 gain rates).

Regulation §1.167(a)-11(e) says that the "placed in service" date is based on the taxpayer, not the property. For depreciation you use the lower of Adjusted Basis or FMV, so that would be $35,000 starting when the taxpayer placed it in service.