gifting business real property and effect on bus t/r

[schirallicpa]

Ok - I have said this before.  This is a year for unique situations for me.

I have a client that has owned business real estate for several years.  This building has been depreciated over about 14 years now.  She gave the building to her sister.  

Now I am doing the tax return.  Sch C.  How do I take these assets off the return?  It is not a sale.  Is there recapture?  Does it just end?  

[jklcpa]

Because sole proprietors already own all the assets of the business, there is no tax consequence of property distributions from the Sch C to the owner. There is no sale in your client's case. Mark it as withdrawn for personal use so that depreciation ends on the date it stopped being used in the business. The basis carries over from your client to the sister.

[schirallicpa]

Love it.  Thank you!

 

[kcjenkins]

And the recipient needs to understand that, as a gift, the tax basis is the basis from the giver.  Best that this information is in writing, and signed by both.  This is for the recipient's protection, not the giver's.  And remind your client that, while there is no tax effect on the business, there might, if the value of the building is significant, be a gift tax issue.