How do I report my client quit claim deeding her house to her children, with half of the home having been rental property.

[deb514]

The upper portion of the house was used as rental property, with that portion having been depreciated over the years. I assume I need to claim the depreciation taken as if it was sold?  Have never had anything like this before so I am looking for advice on how to handle.  Thanks!!

[jeffmcpa2010]

It's a gift not a sale. Nothing to report on her 1040. There is no recapture of depreciation on a gift.

Depending on FMV she might have to file a gift tax return.

the Kid's get her basis, which is net of the accumulated depreciation.

I'd have to look it up to know whether  you carry the actual basis and continue the depreciation if they continue to rent out the rental portion, or whether you take the net basis and start over - but someone will chime in on that pretty quickly.

[IRonMaN]

I don't know the answer but I would tend to wing it and say start with the net basis and start depreciation all over again.

[BobKamman]

Is there a mortgage?

[deb514]

I am looking at how to report it (if it needs to be reported) on the mom's tax return, Now that she has quit claim deeded it to the kids they are not planning to rent that portion out anymore.

[IRonMaN]

As previously pointed out, the transfer doesn't get reported on the 1040.

[BobKamman]

I ask because " A gift of encumbered property is valued as the excess of the property's fair market value (FMV) at the time of the gift over any debt to which the property is subject. The liability encumbering the property is deemed consideration paid to the transferor; thus, the donor realizes income to the extent the liability exceeds his or her adjusted basis."

https://www.journalofaccountancy.com/issues/2002/jan/incometaxconsequencesofcertaingifttransactions....

[sjrcpa]

And you stop depreciating it on Mom's return as of the date of the gift.

[BobKamman]

Except when it does.