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Old 04-05-2013, 01:53 PM
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Tax questions on a gift of rental property

I'm somewhat clear on the basis of the rentals, themselves, and their 27.5 year depreciation, after a gift of rental property.

It's the other current Improvements that are being depreciated that I cannot seem to find an answer for.

These rentals are owned by my Mother and will be gifted to me soon. Things like furnaces and siding and roofing, etc, were done, that are being claimed under depreciatiion. What will happen to these after the gift process?

In searching the net, I find no discussion of this. Find it hard to believe things being depreciated over 15 or 27.5 years would just be gone.

Seems it'd be a simple answer, but again, I came here as I can't find an answer with a simple Google search.



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Old 04-05-2013, 10:11 PM
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“These rentals are owned by my Mother and will be gifted to me soon. Things like furnaces and siding and roofing, etc, were done, that are being claimed under depreciatiion. What will happen to these after the gift process? “========They’d be added to the depre basis(adj basis) of the rental pty. You receiving the gift needs to know the FMV at the timeof the gift, because at the time you sell the property you must do two calculations. If using the defined basis(when FMV>BASIS) results in a gain, but using the FMV(WHEN basis>FMV) results in a loss, you treat the result as No Gain, No Loss.


“In searching the net, I find no discussion of this. Find it hard to believe things being depreciated over 15 or 27.5 years would just be gone. “==========Once you allocate the value to the correct pieces of property, you will take a deduction based on the amount of useful life left in the items. For example, with the real estate itself, you get to depreciate the value based on a useful life of 27.5 years. This means that you take the cost basis of the house itself and divide it by 27.5. The amount that you come up with is the amount you get to deduct for depreciation in year one.



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Old 04-06-2013, 11:14 AM
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Not sure we're on the same page here. No one is selling the rentals.....they are being gifted to me, and I will be the owner and landlord.

Do I understand correctly that the Improvements, done in the last two years since taking ownership, will be added to the value of the rental? Then, I would start depreciating at year 1 of 27.5, with that grand total? Even though some of those Improvement deductions were previously being depreciated at 5 or 15 years?

Or, am I misunderstanding?



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Old 04-06-2013, 11:31 AM
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“Do I understand correctly that the Improvements, done in the last two years since taking ownership, will be added to the value of the rental? Then, I would start depreciating at year 1 of 27.5, with that grand total?”==========Correct.I mean you need to add the depreciable basis of the improvements to the basis of the rental pty given to you as a gift.The basis of the rental pty is either its adj basis or its FMV at the time of the gift. For purposes of determining gain, you generally take a transferred basis when you receive property as a gift. This means that your basis in the property is the same as the donor's 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.On the contrary if the donor’s basis was greater than FMV then FMV ‘d be the basis of the gifte rental pty.
“ Even though some of those Improvement deductions were previously being depreciated at 5 or 15 years? “==========Correct; some of those Improvement deductions were previously being depreciated at 5 or 15 years were already added to the basis before the new improvements are addede to the new basis of the gifted rental pty.



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Old 04-06-2013, 11:50 AM
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Thanks for the quick reply.....

Ok, I think I'm starting to understand....but just want to be sure I have this right...

When determining the basis for when I begin ownership, I would use the adjusted amounts of all the prior depreciated items. The rentals themselves and all improvements, at their current depreciated value. Add them all together to get a new starting basis for my 27.5 year deprectiation. Right? Or, the FMV, whichever is greater? I assume I would want the higher figure, for depreciation purposes.

Is that what you are saying?



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Old 04-06-2013, 12:10 PM
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"When determining the basis for when I begin ownership, I would use the adjusted amounts of all the prior depreciated items."=====>Correct to prevent double depre;simple example; the donor's , basis $100K , $20K taken as depre, then donor's adj basis id $80K, FMV at the time of gift is $90K, then as $90K>$80K, donee's basis is donor's adj basis, $80K, NOT $FMV of $90K; if the fmv is $70K, then the donee's basis for gain is $80K,NOT $70K, but donee's basis for loss is $70K, FMV.




"The rentals themselves and all improvements, at their current depreciated value. Add them all together to get a new starting basis for my 27.5 year deprectiation. Right? Or, the FMV, whichever is greater?"=========>assume thatyour new basis is $80K and you add new improvements, $20K worth OF DEPRECIABLE IMPRIVEMNTS. wiTh depre life of 27.5 yr, then your new depre basis'd be $100K;$80K(adj basis)+$20K $20k worth.please read above.



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Old 04-06-2013, 01:32 PM
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Ok....think I understand......I want to depreciate as much as I can, now, so I can continue to reap depreciating benefits, down the road. Thanks.



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Old 04-08-2013, 10:14 AM
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"Then, I would start depreciating at year 1 of 27.5, with that grand total?"============>Anew MACRS depreciation period and method applies to you , the donee ,even if the donated property was ACRS property in the donor's hands. thereore, it appears that you need to start with a new 27.5-year depreciation schedule, but using the donor's ,carryover, adjusted basis in the property.ALSO the donor is responsible for reclaiming only the depreciation he took on his tax return


Last edited by Wnhough : 04-08-2013 at 10:24 AM.


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