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Old 04-09-2012, 09:22 AM
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Recaptured Depreciation

Father gifted son a rental property, what basis would the son report on schedule E.

Let say property was purchased in 1994 for $67,000(land value already taken)
Total depreciation taken _ 16,000
Adjusted basis $51,000

Would the son use adjusted basis of $51,000?

Current fair market value of this property is $350,000.

How is the recapture depreciation of $16,000 reported on the father's tax return.

Is the father filing 709 to report the gift?



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Old 04-09-2012, 09:55 AM
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“Father gifted son a rental property, what basis would the son report on schedule E.”----> For purposes of determining gain, you generally take a transferred basis(the original cost of the rental pty) when you receive property as a gift. This means that your basis in the property is the same as the donor's( your father) basis in the property. More specifically, if the FMV of the property at the time of the gift was equal to or greater than the donor's adjusted basis, your basis in the property immediately after the gift will be the same as the donor's adjusted basis at the time you received the gift. If the donor paid any gift tax, you should increase your basis by all or part of the gift tax paid, depending on the date of the gift. For example, your father gives you the rental pty today that is currently worth $100,000. Your father has an adjusted basis in the pty of $50,000. Your basis in the pty, for purposes of determining gain on any future sale of the stock, is $50,000 (transferred basis), NOT FMV of $100K.So, if you sell it for $200,000 in two years, then your basis of the pty is $50K, your LTCG is $150K;$200K-$50K;however,assume that its cost was $100K and FMV was $50K, I mean basis>FMV, then,if you sell it for $40K in two years, then your LTCL is $10K;$50K-$40K, if yu sell it $210K, then your LTCG is $10K;$210K-$200K. However, if you dispose of th epty for, say, $70K, then no lTCG/LTCL since $200K>$70K>$50K.
“Let say property was purchased in 1994 for $67,000(land value already taken)Total depreciation taken _ 16,000 Adjusted basis $51,000 Would the son use adjusted basis of $51,000?”----->As described above it depends; assume that basis is $51K as you said, and FMV of the pty at the time when you received form your father was say $100K, then as $100K is larger than $51K, your basis is $51K.
“Current fair market value of this property is $350,000.”---->Then, yes, the basis of the rental pty is $51K; as $350K>$51K
“How is the recapture depreciation of $16,000 reported on the father's tax return.”----->Not on your father’s gift tax return 709 but it will be reported when you dispose of th epty in the future.
“ Is the father filing 709 to report the gift?”----->Correct as long as the amount of the gift exceeds $13K , annual gift tax exclusion amount , $13K, however, I guess your father is not subject to gift tax; Gift tax laws are fairly straightforward. Furthermore, most gifts do not result in gift tax or income tax. If you give more than the annual exclusion amount to one person in a single year you'll have to file a gift tax return. But you still won't have to pay gift tax unless you gave given a very large amount. The rules let you give a substantial amount during your lifetime without ever paying a gift tax. As of 2011 the amount is $5,000,000. So, unless your father’s cumulative gift amount is more than $5 mil, he doesn’t pay any gift tax to the IRS.


Last edited by Wnhough : 04-09-2012 at 10:01 AM.


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