No. Gifting a rental to a child, a sibling, or a trust is not a sale or exchange, so there is no depreciation recapture on your return in the year you give it away. The depreciation you already claimed, including everything a cost segregation study accelerated, does not get clawed back. It moves with the property: the recipient takes your adjusted basis and your depreciation history, and the recapture bill only comes due when they sell.
That is the whole answer. But "no tax today" is not the same as "no consequence," and the consequence lands on the person you are being generous to. Worth understanding before a deed gets recorded in December.
Why a gift does not trigger recapture
Depreciation recapture under §1245 and §1250 is triggered by a disposition in which you realize gain. A gift realizes nothing. You receive no money, you recognize no gain, and there is no amount for recapture to attach to.
What happens instead is a carryover. Under §1015, the recipient's basis in gifted property is generally your adjusted basis at the time of the gift, which is your original basis reduced by every dollar of depreciation you took. Your holding period tacks on to theirs. And the depreciation history follows, which means when they eventually sell, the gain attributable to that depreciation is recaptured on their return at their rates, not yours.
So the study you ran three years ago did not create a liability you just handed off by accident. The liability was always there, deferred. You moved who pays it and when.
A worked example: a $540K rental gifted in year three
Say you bought a single-family rental for $540,000 all in, with 80% of that treated as depreciable basis after excluding land. That is $432,000 on the usual 27.5-year schedule.
A residential cost segregation study reclassifies roughly 22% of that basis into 5-, 7-, and 15-year property, so about $95,000 moves out of the 27.5-year bucket. With 100% bonus depreciation available for property acquired (contract signed) and placed in service after January 19, 2025, that $95,000 is deductible in year one. At a 32% marginal federal rate, that is roughly $30,400 in year-one federal tax savings, before any state effect.
Now fast-forward three years and gift the property to your daughter. Over those three years you also took normal straight-line depreciation on the remaining basis, call it another $36,000. Your adjusted basis is now roughly $540,000 minus about $131,000 of total depreciation, or $409,000.
You owe nothing on the transfer. Your daughter's basis is $409,000, not the $600,000 the property might be worth. If she sells at $600,000 a few years later, her gain is computed from $409,000, and the roughly $131,000 of depreciation in that gain is recaptured on her return, the §1250 portion capped at 25% and the §1245 portion (the short-life components the study identified) taxed as ordinary income. The $30,400 you saved stays saved. The deferral became hers.
The trap: gifted property has two bases, not one
There is a rule people miss. If the property's fair market value on the date of the gift is lower than your adjusted basis, the recipient gets a split basis: your adjusted basis for figuring gain, but the lower fair market value for figuring loss. Gift a rental that is underwater and the built-in loss largely evaporates, because neither of you can use it.
Accelerated depreciation usually keeps you out of this trap, since a study pushes adjusted basis down quickly. It bites in the opposite case: a property bought near the top of a market and gifted before depreciation has caught up with the decline. Run both numbers before transferring, not after.
Does the gift itself cost you anything?
Possibly, on the gift tax side rather than the income tax side. A gift of real estate almost always exceeds the annual per-donee exclusion, which is indexed each year, so the excess typically gets reported on Form 709 and applied against your lifetime exemption rather than producing a check. Most investors owe no gift tax; they use up exemption. Some owners spread a transfer over several years by gifting fractional interests to stay inside the annual exclusion. Which approach fits is a conversation for your tax preparer, and your attorney if a trust is involved. Confirm the current year's figures with them.
Why the calendar matters right now
A gift is complete when you have given up control, which for real estate generally means a delivered and recorded deed. A deed recorded on December 31 falls in this gift year; one recorded January 2 falls in the next. That affects which year's annual exclusion applies and which year's return reports it.
It also splits the depreciation. For the year of the transfer, you claim depreciation through the month of the gift and the recipient claims it from there, so a late-December transfer leaves nearly the full year's deduction with you. If a study is part of the plan, the accelerated deduction belongs to whoever owns the property in the year it is placed in service, which is another reason sequence matters: study first in the first depreciable year, gift later.
If you are weighing a study before a transfer
A study is still worth running before a planned gift, because the year-one deduction is yours and the gift does not reverse it. What changes is the conversation you owe the recipient. They are inheriting a lower basis and a recapture position, and they should hear that from you rather than discover it at closing years later. Our reports are built so your preparer can hand the schedules straight to theirs. If the property is likely to be sold rather than held, read how recapture works when you sell after a cost segregation study first, because the math there is different.
If you are not sure a study pencils on the property at all, the savings estimate takes two minutes and will tell you honestly when it does not.