Gift Valuation - basis in hands of donee

[BulldogTom]

TP gifted two homes to his daughters after his wife's death. Both are rentals.

This is what I think should happen:

Children must use carryover basis (his basis) for depreciation on homes moving foward.

Gift Tax valuation is FMV on the date of the gift.

Please let me know if I messed this up.

Thanks

Tom

Lodi, CA

[michaelmars]

DEPends on a lot of things such as did the wife own jointly with husband prior to death? if so there might be a step up depending on her estate and when she passed.

[jainen]

>>let me know if I messed this up<<

I don't think you've messed up yet, but you still have plenty of opportunity!

First determine the donor's basis. It may have been stepped up or down in whole or in part on date of death. It is further adjusted for any gift tax paid on the amount of FMV exceeding basis, i.e., appreciated property. Because, yes, the gift tax is on FMV.

That is the carryover basis for depreciation. But if the FMV at the time of gift was lower than basis, you will need to track TWO carryover bases for future gain/loss.

Then you need to make sure the property is not re-assessed for local taxes under Prop. 13, depending on exactly how all these title changes were structured.