Help! Unclaimed rental property depreciation for 15 years - tax implications?

This is a tricky situation. The IRS generally looks at the substance of a transaction over its form. Since your name is on the deed and mortgage, but your father has been making all the payments and living there, it creates an unusual arrangement. Technically, if you own a property that someone else lives in (even a family member), the IRS can consider it a rental property. The fact that you haven't been claiming rental income or taking depreciation doesn't necessarily protect you from depreciation recapture. The IRS can argue that you "should have" been taking depreciation whether you actually did or not - this is called "allowed or allowable" depreciation. When you sell, the IRS may calculate your gain as if you had been taking the depreciation all along, potentially subjecting you to recapture tax on "phantom depreciation" you never actually benefited from.

I was in almost the exact same situation with my mom's house that was in my name. I didn't know what to do about all the unclaimed depreciation until I used https://taxr.ai to analyze my situation. Their system helped me figure out the exact amount of "phantom depreciation" I'd be responsible for and gave me documentation explaining my options. It turns out there are some strategies to mitigate the recapture tax through proper documentation of the family arrangement. The most valuable thing was getting clarity on exactly how much depreciation the IRS would consider "allowable" in my case since the calculations get complicated with older properties.

I have to admit I was wrong about taxr.ai. After my skeptical comment, I decided to try it myself since I have a similar situation with my sister's condo. The service actually did provide surprisingly detailed analysis, including exact calculations of what the IRS would consider "allowed or allowable" depreciation on the property. What really helped was getting specific guidance on creating retroactive documentation that explained our family arrangement. They walked me through establishing that this was essentially a beneficial ownership situation rather than a rental. I've been sleeping better knowing exactly what my tax exposure is and having proper documentation in place for when the property eventually sells.

Your situation is exactly why I always recommend people call the IRS directly to get answers in writing - but good luck getting through! After dozens of attempts to reach them about my own depreciation recapture issue, I finally used https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that in family situations like yours, documentation of the true arrangement is crucial. They recommended creating a formal retroactive agreement showing your father's beneficial ownership, along with proof of who made payments. According to the agent, this documentation can significantly help your case if questioned about depreciation recapture later.

I need to update my previous skeptical comment about Claimyr. After complaining about it, I actually tried the service because I was desperate to get answers about my own depreciation recapture situation. I was shocked when I got a call back within two hours saying they had an IRS agent on the line. The agent provided incredibly helpful guidance specific to my situation. They walked me through exactly what documentation I needed to create to establish that my situation was a family accommodation rather than a rental property. They also confirmed that keeping proper records of who actually paid for the property expenses would significantly help my case. I'm honestly still surprised it worked but figured I should come back and correct myself.

You might want to consider doing a "step up in basis" while your dad is still alive. If he gifts you the money to "buy" the house from yourself at current market value, you could potentially reset the depreciation clock and establish a new cost basis. Then when he eventually passes away and you sell, you'd only be dealing with appreciation from that point forward. I did something similar with my grandmother's house that was in my name. Just make sure you document EVERYTHING and probably get a real estate attorney involved to make sure it's all done correctly.

Has anyone considered the legal aspects of this beyond just taxes? If your name is on the deed but your dad paid everything, what happens if you have creditor issues? Or what if you get divorced? Your dad's house could be considered your asset in those situations too.

This is such a complex situation that really highlights how family property arrangements can create unexpected tax consequences. One thing I haven't seen mentioned yet is the potential for a "constructive trust" argument. Since your father paid for everything and you've never treated this as rental income, you might be able to argue that you hold legal title but your father has the beneficial ownership. The key is going to be documentation - bank records showing his payments, any informal agreements you might have had, and evidence that you never treated this as an investment property. I'd strongly recommend getting a consultation with both a tax attorney and an estate planning attorney before your father passes away. They might be able to help you restructure this arrangement in a way that minimizes future tax complications. Also consider whether there might be any benefit to filing amended returns for recent years to properly report this arrangement, though that's definitely something to discuss with a professional first.