Sale of Rental Condo

[Chief]

I have a client who sold a rental condo in Hawaii in May 2005. The condo had been owned by him and his wife since 11/13/1984 and was sold on 06/30/2005. It was fully depreciated. The selling price was $150,000 with a cost basis of $76,746 and $60934Depreciation resulting in a total gain of $134, 188. Subtracting $60934 as Section 1245 property leaves an amount of $73254.

In April 2005 the wife died. In figuring the basis of this rental condo, would you figure one half
half as to fmv on the day of the wife's death and the other half for the husband's ownership. Is there any way to figure the total basis as the fmv on the date of the wife's death. I think not. Would appreciate your reaction? Both are and were residents of Florida.

Without taking the wife's death into consideration my client has a whopper of a tax bill. The sale of the rental condo also prohibits him from claiming any loss in 2005 on the rental property.

[Bees Knees]

If they had lived in a community property state, the husband would have received full step up of basis. But since they did not, then husband gets half step up of basis for wife's share, and his share is his cost basis minus depreciation.

[Brian EA]

Does it mean that his share will be half of the cost less HALF of the depreciation?

[jainen]

whopper of a tax bill

>>my client has a whopper of a tax bill<<

It's considerably less than the whopper of the gain he enjoyed, especially considering that almost half the capital gain was funded by tax deductions at ordinary rates, another half was totally cancelled by the stepped-up basis, and the third half was taxed at a much lower rate than you pay on your own earnings.

[Matt Sova]

Basis

The depreciation recapture should be 1250 not 1245. Cap gain on 1/2 depr recapture is at 25%.

[BP.]

yeah, I read it

I know you'd hate it to slip by . . . The third half??

[Chief]

Yeah,

I dont't understand your comment.

[jainen]

whopper

I made a rather ludicrous explanation to emphasize my reaction to the word "whopper." Even if this client's tax had not been vastly reduced by the unfortunate death of his wife, it would still have only been in balance with his gains and the previous tax benefits they represent.

[Chief]

Whopper

Jainen: You're ok. I like whoppers at Burger King.

That particular client when I first did his return was owing IRS more than $32,000. Now that I have my analytical thinking skills in order his liability is going to be much much less than that. In reporting this sale; half of the basis will be stepped up to the date of death of his wife; half of the basis will be his from date of purchase to date of death, that is 1/2 of what would have been for both less half of the depreciation taken.

No one feels slighted from your response. But sometime I have second thoughts when I post a message and then wonder how others took it. You're ok buddy.

[Unregistered]

If they had lived in a community property state, the husband would have received full step up of basis. But since they did not, then husband gets half step up of basis for wife's share, and his share is his cost basis minus depreciation.

That should be MAY have received full step up in basis. Living in a community property state is not in itself, sufficient. The property must be titled as community property.