Depreciation recapture on sale of gifted rental property

[BHoffman]

Donor gifted her rental property to Donee at FMV. (FMV was lower than adjusted basis.)

Donee never rented the property and held it strictly for investment.

Donee sold the property a few months later.

I'm thinking that since FMV was used and not adjusted basis, there will be no depreciation recapture.

Is that correct?

Thanks

[BHoffman]

I'll answer my own question. I prepared the donor's tax return as though the property was not gifted and reported the sale. She ends up with a bigger loss and no depr. recapture. Since she has none, neither will the donee. Since it is a loss, the basis is FMV at the date of the gift plus improvements after the gift plus selling expenses.

[Rapid Robert]

Donor gifted her rental property to Donee at FMV. (FMV was lower than adjusted basis.)

You make it sound like there is some choice or election to be made. There isn't.

I'll answer my own question. I prepared the donor's tax return as though the property was not gifted and reported the sale. She ends up with a bigger loss and no depr. recapture. Since she has none, neither will the donee. Since it is a loss, the basis is FMV at the date of the gift plus improvements after the gift plus selling expenses.

Suggest you consult Pub 551 section "Property Received as a Gift", "FMV Less Than Donor's Adjusted Basis" for the correct treatment. Whatever you did on the donor's "as though" tax return is irrelevant, if not actual nonsense.

[Gretel]

You make it sound like there is some choice or election to be made. There isn't.



Suggest you consult Pub 551 section "Property Received as a Gift", "FMV Less Than Donor's Adjusted Basis" for the correct treatment. Whatever you did on the donor's "as though" tax return is irrelevant, if not actual nonsense.

Rapid Robert, why being so harsh? It's great you not only have the knowledge but also take your time to post on TTB but why not share in kindness?

[BHoffman]

You make it sound like there is some choice or election to be made. There isn't.
Suggest you consult Pub 551 section "Property Received as a Gift", "FMV Less Than Donor's Adjusted Basis" for the correct treatment. Whatever you did on the donor's "as though" tax return is irrelevant, if not actual nonsense.

Dearest Vapid Robert - My wording was clumsy, but believe I've done this correctly. Your comments are appreciated. My comments are in parentheses.

From Pub 551

"Property Received as a Gift

To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you( I know it) , its FMV at the time it was given to you ( I have that information), and any gift tax paid on it (There was none).

FMV Less Than Donor's Adjusted Basis (This is the case)

If the FMV of the property at the time of the gift is less than the donor's adjusted basis (It was), your basis depends on whether you have a gain or a loss when you dispose of the property (There is a loss on disposition). Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property (There was no gain when I used the donor's adjusted basis. There was a loss). Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (Did that)."

If I'm totally misunderstanding the instructions, then I sure hope someone lets me know in whatever fashion they choose.

[Rapid Robert]

Dearest Vapid Robert - My wording was clumsy, but believe I've done this correctly.

Are we agreed, then, that doing what-if calculations using the donor's tax return has nothing to do with it? I take your name-calling as a "yes".

[BHoffman]

[QUOTE=I take your name-calling as a "yes".[/QUOTE]

Take it as a typo

Yes, preparing the donor's return as if wasn't needed but I'm treading in unfamiliar waters and perhaps took the instructions a little too literally.