Transferto relative and sale of rental house

[ballplayer]

Daughter, 40 years old single has rented to unrelated persons a house for many years. Basis, net on Aug 31,2017 is $60,000. Prior years depr $15,000 . On Sept 1 2017 daughter transfers and quit claims to widowed mother, age 69 this house.
Mother sells on Oct 20 2017 this house for $110,000. How do mother and daughter report these transactions:
1. Daughter files Sch D only report disposal of house as a gift with no gain or loss?
2. Mother reports some income and expenses, if any of house and depr for one and half month on Schedule E from Sept 1, 2017 to Oct 2017?
3. Mother reports sale of house to unrelated person on Sch D and FORm 4797 based on $110,000 sales price less basis of daughter $60,000 less depr for one and half month while mother owned the rental house?
4. Mother has ord income in recapture of depr of $ 15,000 + one month and half she owned the house. Rest of gain is capital gain?
Are these correct to report these transactions

[TaxGuyBill]

Did Mother keep the money from the sale? If so:

1) No, gifts are not reported on an income tax return. Report nothing, but be sure the depreciation stops on the proper date.
2) Yes, except for depreciation. There won't be any depreciation because the property was "place in service" and taken out of service by the Mother in the same tax year.
3) Yes, it is reported on 4797, but no depreciation for Mother.
4) Basically. The tax on the depreciation ("Unrecaptured Section 1250 Gain") is taxed at ordinary rates, but it is still classified as a Capital Gain. No depreciation for Mother, but the rest is regular long-term capital gain.


If Mother did not keep the money and gave it back to daughter, it is not legal ("step doctrine" / a tax-avoidance scheme) and everything stays on Daughter's tax return.

[spanel]

Did Mother keep the money from the sale? If so:

1) No, gifts are not reported on an income tax return. Report nothing, but be sure the depreciation stops on the proper date.
2) Yes, except for depreciation. There won't be any depreciation because the property was "place in service" and taken out of service by the Mother in the same tax year.
3) Yes, it is reported on 4797, but no depreciation for Mother.
4) Basically. The tax on the depreciation ("Unrecaptured Section 1250 Gain") is taxed at ordinary rates, but it is still classified as a Capital Gain. No depreciation for Mother, but the rest is regular long-term capital gain.


If Mother did not keep the money and gave it back to daughter, it is not legal ("step doctrine" / a tax-avoidance scheme) and everything stays on Daughter's tax return.

Why would daughter not have to file a gift tax return?

Chris

[TaxGuyBill]

Why would daughter not have to file a gift tax return?

Chris

Good point, a Gift Tax return would be required. I only address the specific questions (#1 asked about reporting it on Schedule D of their income tax return), but neglected to mention the Gift Tax return requirement.

[SHADE TREE TAX SERVICE]

Would there not be a gift tax return and potential taxes regarding the gift paid by the daughter?

Also, if mother received the property as a gift, then her basis would be zero?

If mother sold for $100k and her basis was zero, then pay the taxes on that. She can not argue she lived in the place as daughter rented it, then mother rented and never lived in it. So it was rental property.

[SHADE TREE TAX SERVICE]

correction $110k

[TaxGuyBill]

Also, if mother received the property as a gift, then her basis would be zero?

No. The receiver of a Gift also receives the Basis from the giver. So the Mother's Basis is whatever the Basis of the Daughter at the time of the Gift.

[JohnH]

Also, a Gift Tax Return almost never actually involves the payment of gift tax, except in very unusual and rare situations.

[JON]

I am with Shade

If the transfer is to avoid taxes it does not happen.. "Step Transaction" is what I think you have. The purchase agreement was probably already done when gifted. I would be surprised if the county and state had processed the gift ownership, which should have made the closing interesting.

[Toobusy]

Transfer to relativen

I agreed with Jon and TaxguyBill. The transaction appears to be a tax avoidance scheme!! I advice that you do more research before submitting this return.

Beside, the daughter should reported deprecation she received.