Quitclaimed Rental Property

Question

Just making sure the IRS considers this as a "gift" everywhere so all I have to worry about is Form 709 and the rental stuff up until that gift date right?

There is no where on the tax return where the gift will be considered as "selling at $0" to worry about those forms, right? Filling out those forms would make me have a huge capital loss, unless there's a different way of doing that.

Regarding the Rental income, on the page where it says if the property was disposed of this year or not, it says specifically "Do not check this box if the disposition was to a related party." well...if not here then where else would I indicate I disposed of the property & won't be claiming it anymore? Is quitclaimming to a family member considered "convert to personal use" option?

The only section I see that I could indicate it is no longer mine is later on the section that says "was sold, retired, stolen, destroyed, disposed of, converted to personal use, traded in, or given away (or it's no longer being used in this business for some other reason.)" that is found under the different assets of the rental property that I could depreciate...

Anonymous_ · Accepted Answer

@Redan54 wrote:Just making sure the IRS considers this as a "gift" everywhere so all I have to worry about is Form 709 and the rental stuff up until that gift date right?In addition to what has been previously posted here, it is worth mentioning that both you (the donor) and the donee (recipient of the gift) need to know the fair market value of the property on the date of the gift and, further, you might want to seek professional tax and/or legal guidance in this matter.

Carl11_2 · Answer

The 709 really has nothing to do with your federal 1040 income tax.

When starting your work through of the property, it's about 3 screens in where you'll select the option to indicate "I sold or disposed of this property". You will NOT select the option that it was converted to personal use.

You're report your rental income/expenses as usual, up to the time of disposition.

Then in the assets section you work through each individual asset one at a time and select YES on the screen for "I stopped using this asset in 2019". A screen or two later you're presented a "Special Handling Required?" screen. You'll select YES on that screen after reading it, where you'll see that one of the special handling reasons is that you gave it away.

The only other thing you might have to deal with would be any vehicle use if you claimed any such use (even if less than 100% business use) during your ownership of the property. If you did not give the vehicle away, then select the option that you removed it for personal use. But weather you gave it away or not, so long as you did not sell it you'll select YES on the special handling required screen.

Then 2019 will be the last year you will report this rental on SCH E on your return. HOWEVER, the recipient of your gift gets "everything" - the prior depreciation you've already taken, the carry over losses you have, and your original cost basis (plus the cost of any property improvements you paid for during your ownership.) So there's some forms you need to print out and provide the recipient of your gift. They will *NEED* the information from those forms when they report the rental property for their very first time on their own SCH E.

-The 2019 IRS Form 4562's for this specific property. There will be two of them, and they both print in landscape format. One is titled "Depreciation and Amortization Report" and the other is "Alternative Minimum Tax Report".

- The 2019 IRS Form 8582. This form shows your carry over losses. If you don't have that form in your 2019 tax return package, that just means you don't have any carry over losses. It is "NOT" common for the owner of long term residential rental property to "NOT" have this form. But it's not impossible or unheard of either.

Without the forms above form your 2019 tax return, it will be difficult (if not impossible) for the recipient of your gift to correctly enter data concerning the gift on their tax return.

If this transfer was done mid-year, then the gift recipient will need these forms to enter data correctly on their 2019 tax return. All in service dates and cost basis on their 2019 tax return will match exactly all that information on your tax return. Their carry over losses (if you have any) will either match or exceed what's on the 8582 you provide them.

As for the 709:

You fill that out separate from the tax return and check the instructions for the mailing address. It is not the same address you send your 1040 tax return to.

When you die, there as a maximum value of all cash and assets that can be "inherited" by a beneficiary with no tax consequences. I think it's still around $5,2M per person (the person that dies). All the 709 does is allow you to transfer the inheritance before you die, and the value of that inheritance is subtracted from your lifetime total allowed.

For most of us taxpayers, we'll never even come close to the maximums. But of course, that doesn't negate the 709 reporting requirement.