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reporting disposition of rental property that was gifted mid-year

Randy Haynes
Level 3

 I have clients who gifted a rental property to their daughter mid-year. I will be filing a Form 709 to report the gift, but I am unsure how to enter the disposition properly in ProSeries to make sure the capital gains and depreciation recapture do not flow to the tax return.

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Just-Lisa-Now-
Level 15
Level 15

On the asset entry worksheets, in the disposal section, just enter the date it was disposed (gifted), with no sales price, that will remove it from the return as of that date with no "sale".


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

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Just-Lisa-Now-
Level 15
Level 15

On the asset entry worksheets, in the disposal section, just enter the date it was disposed (gifted), with no sales price, that will remove it from the return as of that date with no "sale".


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
DJRogers
Level 2

That works but I do not see that it is triggering the passive losses carried forward to be recognized.  Shouldn't they be allowed since this is a complete disposition of the activity?

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Just-Lisa-Now-
Level 15
Level 15
Sch E worksheet, Box H up near the top should free up suspended losses.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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DJRogers
Level 2

Thanks, but I must be missing something.  I don't see a box h on Schedule E.  Is that the check box for "Delete this year"?  I tried that and it did not change. 

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Terry53029
Level 12
Level 12

@DJRogers Be sure you are on the schedule E worksheet. Under heading "Check all that apply" is a box H, Complete taxable disposition. you must check that box. That would release the losses, but see what sjrcpa has to say. Also, When a taxpayer transfers an interest in a passive activity by gift, suspended losses increase the basis of the interest. The increase is deemed to take place immediately before the gift (Sec. 469(j)(6)(A)).

DJRogers
Level 2

OK, thanks.  I still don't see the box you mentioned but I guess it is a moot point if the losses are not triggered anyway.  

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sjrcpa
Level 15

The passive losses do not get freed up. It is not a "complete disposition in a taxable transaction". Section 469 has rules about what happens or doesn't happen to them. They may get lost.

George4Tacks
Level 15

@Randy Haynes Give your client a printout of the final depreciation with YTD depreciation for the year of gift. The daughter will need that to set up the rental on her return, or for future reference when she sells. 


Here's wishing you many Happy Returns
Randy Haynes
Level 3

Thank you. One of my pet peeves is new clients with rental properties whose previous preparers did not provide the taxpayer with complete depreciation details. I always provide that along with an explanation of the importance it carries upon disposition of the property.