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Gifting a rental

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    Gifting a rental

    I have a client that gave his rental to his son in in november of 2019. I have to do a gift return, but i don't know what to do about the carryover loss from previous years or recuping depreciation.

    With a gift the basis in hands of the gifter is transferred to the giftee in general.
    Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR


      The carryover Passive Loss increased the son's Basis, and the Passive Loss is gone.

      The depreciation lower's the son's Basis. Logically, the son would need to keep track of that prior depreciation and factor that in whenever he sells (as Unrecaptured Section 1250 gain). However, if I remember correctly, there isn't any actual direction in that regard, so he treatment may be questionable.

      At any rate, for your purposes of doing the Gift Tax return, the Passive Loss increased the Adjusted Basis (then the Passive Loss disappears), and the depreciation Lowers the Adjusted Basis.


        TGB is spot-on. A snip from 469(i)

        Special rule for gifts

        In the case of a disposition of any interest in a passive activity by gift—

        (A) the basis of such interest immediately before the transfer shall be increased by the amount of any passive activity losses allocable to such interest with respect to which a deduction has not been allowed by reason of subsection (a), and

        (B) such losses shall not be allowable as a deduction for any taxable year.