Father wants to gift home his sone is renting from him, at FMV to his son and family.

[ajsmith922]

Father has been renting a home to his son and family for several years at FMV and now wants to give it to them as a gift. This brings up several questions. The first one is would the father have to pay tax on any of the depreciation already taken or would it reduce the home's basis for the son. Would the son have to keep track of this depreciation and pay tax on it when he sells it, if he does? What would be the basis in the home for the son? Lastly, what would be the basis for the father to show as the gift? He is allowed to gift $16,000 to each member of the family without it requiring him to file form 709. So if I'm correct he could take the $16000 times the number of family members away from his basis in the home and what's left over would be the amount he uses for the 709.

I understand the need for an FMV valuation and all that. My main question deals with what the father will need to do besides the 709. Does he need to show a sale or how does he get it off his Sch E.

[BOB W]

How old is the father? It would be better if son inherits home down the road.

[Uncle Sam]

You've raised a number of different issues.
First - the depreciation taken by the father reduces his COST basis of the property. The depreciation taken doesn't effect the son on the transfer.
Second - at the time the conversion takes place, there needs to have a FMV valuation of the property because lower of basis or FMV is used for father's basis.
But for gift tax purposes, it's the higher FMV that is used on Form 709.
In your original post you first mentioned gift to son, then you changed it as a gift to multiple family members. Which is it?
Gift tax exclusion in 2023 is now $ 17,000 per person.
It looks to me as if he's attempting to skirt around having to report the property as a gift due to multiple members.
If he's doing that, he's supposed to report the pro-rata FMV of the gift to each party, then Form 709 factors in the annual exclusion to each party.

[FEDUKE404]

You've raised a number of different issues.
First - the depreciation taken by the father reduces his COST basis of the property. The depreciation taken doesn't effect the son on the transfer.
Second - at the time the conversion takes place, there needs to have a FMV valuation of the property because lower of basis or FMV is used for father's basis.
But for gift tax purposes, it's the higher FMV that is used on Form 709.
In your original post you first mentioned gift to son, then you changed it as a gift to multiple family members. Which is it?
Gift tax exclusion in 2023 is now $ 17,000 per person.
It looks to me as if he's attempting to skirt around having to report the property as a gift due to multiple members.
If he's doing that, he's supposed to report the pro-rata FMV of the gift to each party, then Form 709 factors in the annual exclusion to each party.

Excellent summary, Uncle Sam.
Obviously father cannot "bundle" a bunch of $17k gift tax exclusions to one individual.
I've seen too many cases where the recipient of a gifted house / land gets a great surprise when they are informed the donor's cost basis transfers. (Bob W makes an excellent point also.)
There is also the fact that many folks "get creative" to remove assets from their ownership, so as to benefit from various government payments. Before anyone has a hissy fit. . .just an obvservation and not an accusation.