basis for inherited rental property

[taxmom34]

a client had been renting previous personal residence since 2003. husband died 2/2008 how does depreciation change for the rental property. wife inherited the property, can i add 1/2 of his value at time of death and if so , how?

[Burke]

You simply increase the depreciable basis by his 1/2 (if it was jointly owned) in your software and compute new depreciation for 2008 on that figure. Treat the same as you would if improvements were made to property.

[JoshinNC]

I actually track improvements

You simply increase the depreciable basis by his 1/2 (if it was jointly owned) in your software and compute new depreciation for 2008 on that figure. Treat the same as you would if improvements were made to property.

as a separate depreciable item. Don't know if that's "accurate" but's its how I was taught. I don't know that that is applicable to this particular situation.

Thoughts anyone?

[Kram BergGold]

More complicated

First, if the property was bought before some date in 1972 or 1977 (I jsut can't remember which) and only the husband's money was used to buy the house then there is a 100% step up in basis. All prior depreciation gets wiped out. If bought after that date or wife contributed to the purchase price then you reduce the current depreciable basis by 50% and drop 50% of the accumulated depreciation and then start a new asset that reflects 50% of the date of death value less land value.

[taxea]

basis for inherited rental property

I agree with Burke based on not reading anything into the original post that was not stated.
taxea

[taxmom34]

new questions popping up

in my head. the more i think about this situation the more questions i have. it looks like i have to go back and ask more questions as to when property was bought, i know it was about 30 or 35 years ago. let me see if i can clarify the situation.
client and husband bot the house as principal residence, then in 2003 bought newer residence and rented out house number one. Cost at the time was $25,000 (the basis for depreciation minus land), now husband died 2/2008 and the appraised value was $181,200, soo i'm thinking of taking half the value, but do i subtract the original cost and what happens to the widow's half? (does she wait until she sells it to put in her half?) my brain seems to be in a fog in off season, but that is still no excuse. thanks to everyone responding.

[erchess]

Joint Returns?

How did the couple file when they were renting the house and both were alive? If they filed jointly why is basis changed? Are things here complicated by community property rules?

[taxea]

basis for inherited rental property

If 181K includes the current land value you have to subtract the land from the 181K.
Once this is done, the spouse now has a basis of 181K minus the land. Then you subtract the original 25K from that value to get the new depreciation which went into service the date the husband died. You continue the original depreciation from the original rent in-service date. This means you have 25K depreciating from the original rental date and the stepped up basis depreciating from the 2008 date.

This isn't any different than had they spent the same amount of money to improve the property. In that case, you would again leave the original 25K depreciating from the original date and begin the new depreciation using the "improvement cost" beginning in 2008. taxea

[abby]

whole basis vs half basis

The full FMV of the property would be the spouse's new basis only if the entire property was includable in the estate (whether an estate return was filed or not). The circumstances where that would be the case are likely if the estate is in a community property state or the deceased was the sole owner of the rental (or the joint owner was added to the title but provided no consideration).

I believe, then, if only half the property is included in the estate, then only half the FMV is set up for depreciation, minus the adjusted land basis(taking into account the land already set up from 2003) and minus the 12.5k of basis that is still being depreciated for the husband's half.

[Burke]

First, if the property was bought before some date in 1972 or 1977 (I jsut can't remember which) and only the husband's money was used to buy the house then there is a 100% step up in basis. All prior depreciation gets wiped out. If bought after that date or wife contributed to the purchase price then you reduce the current depreciable basis by 50% and drop 50% of the accumulated depreciation and then start a new asset that reflects 50% of the date of death value less land value.

It's any property bought and jointly held by H/W pre-1977. It's all included in his estate (or first to die) unless spouse contributed to purchase with own funds.

[Jesse]

I have a similar situation in a community property state with two residential rental properties receiving 100% step up basis. These properties were originally purchased in 1992. Do I now start the properties over so to speak and treat them as purchased as of date of death with no prior depreciation?


Lets say the properties were purchased for $50,000(without land value) with accumulated depreciation of $29,000 for an adjusted basis of $21,000.

The FMV at date of death is $125,000(without land value).

Do I now start the depreciation over with $125,000 basis over 27.5 years?

[Davc]

Yep............

[Jesse]

After thought -

How do you calculate depreciation for the entire year?

Do you treat the property as being acquired as of 01/01/08?

Or do you run two different schedules for the year of death, one with the cost basis up to the date of death and the other with the FMV starting at the DOD?

[taxea]

basis for inherited rental property

Jesse, I see that your post says that you are a senior member but this issue seems to be way beyond your experience. May I suggest you hook up with a professional that has more experience. taxea

[JG EA]

A thought for taxea

Jesse, I see that your post says that you are a senior member but this issue seems to be way beyond your experience. May I suggest you hook up with a professional that has more experience. taxea

He did.

This board is so helpful because we can bounce ideas off other preparers. Usually people on the board are the only preparer in an office. Sometimes it may seem that questions reflect ignorance - they do - but not ignorance of all tax law. We may need to get a few basic questions answered in order to make sense of what we are studying, or trying to figure out.

Perhaps we may see someone is in over his or her head, but someone else may put us on the right track – when that happens it is so welcome.

I personally feel that much in this business is over my head – in fact impossible in many cases. Over the years I have tackled many of these and knew that it was a challenge that could be met. I don't think we should assume that asking questions that don’t sound like we are already well versed in the subject means you should turn the whole issue to another. If you mean consulting with someone else, then that is what is happening on this board.