Stepped Up Basis Joint Tency Residential Rental

[SFBOB]

Husband died 12-4-2006 Widow came to me yesterday with unfiled tax returns for 2006,2007 and 2008. FMV of rental is $800,000 with land 50%. Property had 15 years of remaining depreciation Do I use a new depreciation of 27 1/2 years and begin 12-5-2006.
$400,000 FMV building at 3.636% per year or $14,544.00
Rental is in California a community property state. Original basis for depreciation was $200,000 in 1994.
Thanks for your feed back. Bob

[Snaggletooth]

Another Question

...not that I have a good answer for Ellsworth question, but it might affect the answer...

If building was under lease, do the remaining lease payments constitute income in respect of decedent??

[Maribeth]

Husband died 12-4-2006 Widow came to me yesterday with unfiled tax returns for 2006,2007 and 2008. FMV of rental is $800,000 with land 50%. Property had 15 years of remaining depreciation Do I use a new depreciation of 27 1/2 years and begin 12-5-2006.
$400,000 FMV building at 3.636% per year or $14,544.00
Rental is in California a community property state. Original basis for depreciation was $200,000 in 1994.
Thanks for your feed back. Bob

I am assuming that the property is community property, held by the decedent and your client.

The entire basis is stepped up as of 12/5/2006. Depreciation starts again under whatever depreciation rules were in effect at that time.

As an aside, are you SURE that the land value was 50% of total value at 12/5/2006?

Maribeth

[SFBOB]

Seemed To Good To Be True

Thanks a bunch Maribeth. I had received this answer from 2 other sources and found it to good to be true. I did considerable reading and cannot find this in writing in any of my reference material. In any event I now believe the answer. Thanks to all. Regards bob

[SFBOB]

Land Value

Maribeth sorry;I was so excited about your answer, I forgot to comment on the land value.
The property is 20 miles south of San francisco. The land values are often greater than the cost of complete remodeling or building new homes on the property.
I had an audit last year and was using 40% land. The auditor made an adjustment to 50% land value. When I set up the depreciation, I did not have the tax bill. Sure enough the land was 50%

[RLymanC]

Holding title in CA

Held title as Joint Tenants in CA community property state:

The basis in inherited property is stepped-up to the date of death value. Wife "inherited" ½ from Husband; she already owned her half.

Wife's basis was $100,000 (½ of $200,000). It stays the same. She already owned it and did not inherit it.

Husbands ½ (now owned by Wife) is stepped-up to $400,000

Wife's basis is now $500,000.

Had the property been titled "Community Property with Right of Survivorship" the stepped up basis would be $800,000

[New York Enrolled Agent]

Thanks a bunch Maribeth. I had received this answer from 2 other sources and found it to good to be true. I did considerable reading and cannot find this in writing in any of my reference material. In any event I now believe the answer. Thanks to all. Regards bob

I think you're asking for the cite to start depreciation "all over again". If so, look at Reg §1.1250-3(b)(2) - I think that will work for you.

[SFBOB]

Title on The Property

The tax bill reads [The Taxpayer Family Trust] The trust was formed in 1988 and states that all property held in this trust, shall be considered community property. I hope this does the trick for 100% step up in basis. They were married for 48 year prior to husbands death in 2006.
They likly like my late wife and I came into the marriage with the clothes on our backs and hopefully enough money for the first months rent. I did have a 9 year old used car. Thanks R lymanC hope you agree that this will pass the test. Thanks

[Jesse]

From NATP reasearch - my $25 answer........

"The IRS will respect state law with regard to the double step up, you will need to check with Wisconsin law with regard to whether a step up is allowed or not."

My question:
Elderly woman whose husband deceased in 2008 has several rental properties and her personal residence with additional land, with each of the deeds titled differently. All but one of these properties was purchased after 01/01/1986(this is the date Wisconsin became a Community Property State).

Purchased/Titled
- post '86/One is titled as "Husband and Wife as survivorship marital property, Grantees"
- post '86/One is titled "Husband and Wife as survivorship marital property"
- post '86/One is titled "Husband and Wife"
- post '86/Two are titled "Husband and Wife as joint tenants"
- 1985/One is titled "Husband and Wife as joint tenants"

The Attorney advised that UNLESS a married couple has entered into a Marital Property Agreement, there is NO Double step-up basis, therefore only three of these properties are eligible for the double step up basis. I did show him the Wisconsin Tax Bulletin #60, which he stated only referenced "marital property" and joint tenants are not considered marital property without a marital property agreement.

For Wisconsin I have always understood that property acquired by spouses after the determination date is presumed to be marital property, not individual property, unless a written agreement is entered into to opt out of the marital ownership or if another exception applies, for example, joint tenants with another nonspouse or receipt by gift. I have also read over Wisconsin Pub 113 and Wis Stats. 766.31 and I come to my original conclusion.

I emailed the attorney the following,(attorney then charged the client $60 to tell her that he still disagrees with my conclusion).

This is my beginning source from Wisconsin Pub 113:

http://www.revenue.wi.gov/pubs/pb113.pdf

Under Wisconsin law, it is possible for property to be
titled as individual property or in a common law estate
(e.g., joint tenancy or tenancy in common), but still be
marital property. The IRS has ruled that this property
qualifies for the double basis adjustment applied to
community property. [Rev. Rul. 87-98, 1987-2 C.B.
206.] Because of this, it is necessary to know when
property is actually held as marital property.

The general rule is that property acquired by spouses
after the determination date is rebuttably presumed to be
marital property [Sec. 766.31(1), (2) and (4), Wis.
Stats.], but there are exceptions. [See sec. 766.31(7),
Wis. Stats.] For example, property received in exchange
for individual property of a spouse is individual property.

[Sec. 766.31(7)(b), Wis. Stats.] Property received
by gift or inheritance by one spouse but not the other is
the individual property of that spouse.
[Sec. 766.31(7)(a), Wis. Stats.] Also, the appreciation in
value of individual property of a spouse is individual
property, unless it can be attributed to efforts of either
spouse that were not reasonably compensated.
[Secs. 766.31(7)(c) and 766.63, Wis. Stats.]

I then emailed the Wisconsin Department of Revenue the same question to ask if I was misunderstanding the Wisconsin laws and from an estate auditor received the following answer:

"Your explanation and understanding is correct. The attorney's interpretation is incorrect for Wisconsin marital property law."