Hi Reddit,
I will keep the numbers simple for this question.
– Let's say my father purchased a house in 1970 for $70k.
– He transferred the house to me using a quitclaim in 2020.
– He died in 2023.
– The house is worth 300k and is now rented out.
Would I use $70k for my depreciation?
Thanks!
Depreciation of a property I received via Quitclaim.
byu/BrilliantNet5920 intax
Posted by BrilliantNet5920
4 Comments
Do you mean your cost basis? If he transferred it to you for a nominal consideration, then you would take his cost basis and it would not be stepped up to the time you bought it. So $70,000 would be your cost basis.
Was this a personal residence or an investment/rental property (when your father was living)? Did your father continue to live in/use the house after it was transferred to you for no consideration? If so, there is an argument that the property was included in his gross estate under 2036 and therefore gets a basis step up to fair market value at his date of death. If not, then you get carry over basis, so whatever his basis was is yours. Land can’t be depreciated, so in either case, you have to allocated the basis between land and improvements.
Adding to what’s been said:
Some of that $70k purchase price has to be allocated to the land, which cannot be depreciated. If this is stated separately in the purchase documents, that’s easy (if you have those documents). Otherwise, easiest method is to look at the property tax valuation, which should specify the assessed value of the land, and take the ratio of land value to non-land value and apply that to the $70k purchase price.
If he made any improvements to the house – new roof, kitchen renovation, that sort of thing – then the cost of those improvements should be added to his basis, which then transfers to you. May be difficult to find records to support that, though.
Same goes for any improvements that you made to the house after the transfer and before you started renting out the house. Improvements made after you started renting out the house are usually depreciated separately, as their own asset.
Usually no. Your depreciation basis is generally the basis you received it with (gift vs inheritance rules), and you only depreciate the building portion, not land.