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Old 02-19-2015, 03:20 AM
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Basis of gifter - rental real estate

I received a CA rental property as a gift in 1998 from my dad. Dad passed away in 2001. I am is selling the property now in 2015. Dad bought the original property in 1969.

My understanding is the basis of a gift is the basis of the gifter (dad).

My questions are:

1) How do I figure out the sale of the property in 1969 when dad bought it? We do not have sales information from my dad's records. Only a grant deed.
My understanding is, I need this sales information to determine gain for taxes.

2) In 1998, when I received it as a gift, my understanding is, I need to know if he used a life time gift exemption or an annual one, in order to calculate the basis. We do not have records of the 1998 tax return to know what he did. Does the tax dept have that? If not, what do you suggest?

3) Also, how do I figure out the land vs. building ratio of the 1969 sale?

As you can probably tell, I did not use the annual rental depreciation all these years or I would have know some of these questions. My uncle was doing my taxes for all these years, and I found out just this month, that I should have been doing it. I know that was dumb of me, but I think the basis is very low so maybe it didn't affect me that much.

Thank you for your time. Sorry ahead of time if I do not make sense or stated something wrong.

Also, if anyone has recommendations of a tax person in Southern California, please let me know.



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Old 02-19-2015, 11:48 PM
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My understanding is the basis of a gift is the basis of the gifter (dad). ========>>>>>>>>>in general yes aslongas the present FMV of the rental pty is larger than your dad’s original basis( I mean adjusted basis). For example say the donor(in this case your dad)’s basis(or adjusted basis ) is $500,000 and depreciation taken previously is $300,000 then your dad’s adjusted (book) value is $200,000 if you sell it for $700,000(FMV) then your gain is $500,000;$700,000-$200,000. And $200,000 of $500,000 is ordinary gain under sec 1250 depreciation recapture rule ( it is taxed at 25% if your marginal tax rate is 25% or higher)and the remaining $300,000 is long term capital gain taxed 0% or 15% you dad did not have to recapture the unrecaptured depreciation taken previously as ordinary income bur you must when you dispose of it later.

My questions are:

1) How do I figure out the sale of the property in 1969 when dad bought it? We do not have sales information from my dad's records. Only a grant deed.===========>As you can see, your dad’s basis(original basis) is the FMV , the market value of the rental property, that your dad paid for the rental pty in 1969 .i guess you need to contact an appraiser for more professional help/ info in detail or County property assessments office .
My understanding is, I need this sales information to determine gain for taxes.=============.Correct. When you sellthe pty, your gain (profit) or loss for tax purposes is determined by subtracting its basis on the date of sale from the sales price plus sales expenses, such as real estate commissions.

2) In 1998, when I received it as a gift, my understanding is, I need to know if he used a life time gift exemption or an annual one, in order to calculate the basis. We do not have records of the 1998 tax return to know what he did. Does the tax dept have that? If not, what do you suggest?=========>>>>>> I guess your dad must have filed irs form 709 when he gave it to you as a donor; so the IRS still keeps the copy.you who need certain prior year tax return information can obtain it from the IRS. Requests for copies of a deceased taxpayer's tax returns must include a certified domiciliary letter and be signed by the personal representative of the estate or a certified copy of the letter appointing a special administrator must be provided. If there is no estate, a certified copy of the death certificate and a statement of the reason for the request is required."



basically, the lifetime amount that a person can gift away without incurring any federal gift tax. Nonetheless, any lifetime gift tax exemption used will reduce the estate tax exemption of your dad making the gift.For 2014, your dad, a donor, is not subject to gift tax UNLESS the amount of his cumulative gifts is less than $5.34 million. I guess when your dad gave it to you as a gift, he must have filed IRS form 709; form 709 is used to report taxable gifts and allocate the lifetime use of one's generation-skipping transfer tax exemption for example say you gave $15,000 to your son as a gift, then $15K exceeds $14K the Annual gift Exclusion Amount for 2014, you must file form 709 with the IRS.

3) Also, how do I figure out the land vs. building ratio of the 1969 sale?===========>>As said, once you figure out the original basisi of the rental pty , to be clear, you only depreciate the improvement value (structure) as land is not depreciated. If you know the total value and land value you can determine the improvement value 0f rental pty. For example, say you buy a rental house for $300k. Part of the purchase price should be allocated to the house and will be depreciated over 27.5 years. Part of the purchase price should be allocated to the land and will be an asset but will NOT be depreciated.


As you can probably tell, I did not use the annual rental depreciation all these years or I would have know some of these questions. My uncle was doing my taxes for all these years, and I found out just this month, that I should have been doing it. I know that was dumb of me, but I think the basis is very low so maybe it didn't affect me that much.======>>>>>it doesn’t matter if you actually took those annual depreciation ll those years, you still must recapture the depreciation that should have been taken previously as ordinary income as said when you sell it.so, unfortunately, the IRS says that if you didn't depreciate a rental property, when you go to sell it, you have to treat it as if you did depreciate the property.


Thank you for your time. Sorry ahead of time if I do not make sense or stated something wrong.

Also, if anyone has recommendations of a tax person in Southern California=========> I guess you can contact association of CA Enrolled agents for professional tax help.



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Old 02-20-2015, 09:28 AM
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Thank you for the advise and detailed explanation. I appreciate the information.



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