Rental house gifted to son

[JRL]

T/P has gifted a rental house to son, with an appraisal for 90,000 dollars, gift tax return will be completed, no gift tax due. Question on the T/P 1040 is a sale of rental house required, and if so what is the selling price, the appraisal price or the 50,000 dollars the T/P paid for it. Concerned about the recapture of the depreciation taken.

[TAXNJ]

T/P has gifted a rental house to son, ......Question on the T/P 1040 is a sale of rental house required, and if so what is the selling price, ........

Is it a Gift or a Sale by the TP?

[Rapid Robert]

Is it a Gift or a Sale by the TP?

That is what the OP is asking.

To answer the OP: no, for the TP it is not a sale, and there is no income tax effect for the TP (donor). The donee (son) receives the gift with the same adjusted basis (including depreciation) as it had in the hands of the donor. So, along with the gift, the dad has passed a long a hefty income tax liability to the son, assuming the value does not decrease significantly in the future. Of course, if son moves into the property as his primary residence for two of the five years prior to sale, may be eligible for a Sec 121 exclusion, or if he keeps it until death, then a step-up in basis to his heirs.

[Rapid Robert]

here is the question: “Question on the T/P 1040 is a sale of rental house required, and if so what is the selling price”

And that is the question that I answered, and you didn't.

[Uncle Sam]

If something is a gift - how can it also be a sale simultaneously? It's either one or the other.
The OP provided details characterizing a gift, and was asking the proper reporting on 1040 to finalize the reporting of the property.

[Rapid Robert]

So if it was a Gift as Original Poster determined then the question to the Original Poster, why would it be a sale.

That is what the OP was asking, whether it should be treated as a sale. The answer is no.

For someone who has never encountered the situation before, the income tax treatment of gifts of depreciable property may not be immediately obvious. After all, it's not something that most taxpayers ever deal with, let alone on a regular basis. It does seem to go against common sense that the unrealized taxable gain accrued to the donor can just be handed off to someone else with no income tax return reporting required. It is the job of the new owner (donee) to obtain records of the adjusted basis of the property received and use them when needed in the future on his own income tax return.

[admin]

Please keep the discourse pleasant on this message board everyone. The reference to Rapid Robert as 'Rabid' is something that is not appreciated unless there is some inside joke that the rest of us are not privy to. Friendly debate is perfectly fine, but name calling is not appreciated and will not be tolerated.

update: this was a typo and since been fixed.

[New York Enrolled Agent]

Please keep the discourse pleasant on this message board everyone. I don't feel your reference to Rapid Robert as 'Rabid' is something that is appreciated unless there is some inside joke that the rest of us are not privy to. Friendly debate is perfectly fine, but name calling is not appreciated and will not be tolerated.

Admin.

Comment #1 - good post

Comment #2 - is Bees Knees ever going to be released from posting purgatory out there in MN? Even though we occasionally had a "friendly debate" I, for one, miss the BK contributions.

[ATSMAN]

The donee (son) receives the gift with the same adjusted basis (including depreciation) as it had in the hands of the donor. So, along with the gift, the dad has passed a long a hefty income tax liability to the son, assuming the value does not decrease significantly in the future.

That is correct and in real life situations a couple of years since the gift the property will be sold by the donee and either get sec.121 exclusion or just CG calculated the normal way because the fact that it was a previous rental would be forgotten!

[Burke]

That is what the OP was asking, whether it should be treated as a sale. The answer is no.

I read the question as to whether the transaction had to be reclassified as a sale. No, but that might be a viable option. It could be beneficial to the buyer-son, but it would have to be at FMV. However, that might be detrimental tax-wise to the seller, should there be a substantial gain. He states FMV $90K, purchase price $50K, so that is $40K capital gain right there -- not counting depreciation taken. Maybe seller could do an installment gain to minimize this. We don't know anything otherwise about the individual parties' tax situations, whether the property will continue to be rental property, or whether there are any state tax considerations.