Rental Property Sold in Estate

[cynamoats]

Deceased taxpayer had a rental property, almost totally depreciated. An estate was formed and the rental property was subsequently sold. Which entity recognizes the recaptured depreciation on the sale of this property?

Thank you in advance for any guidance or direction to my question.

[Matt Sova]

None

There is a step up in basis upon death to FMV.

[OldJack]

An estate was formed and the rental property was subsequently sold. Which entity recognizes the recaptured depreciation on the sale of this property?

As Matt said there is a step-up in basis to fair market value as of the date of death and no recapture of depreciation on sale. Sale is reported by the estate on form 1041 unless it had already been distributed to individuals.

[cynamoats]

I understand about the step up in basis. It just seems hard to believe that the asset can just come off a Schedule E with no recapture of depreciation. Is there a right way to properly report the asset and depreciation have stopped ? Just enter the date the estate was established or the asset was placed in the estate in the depreciation section of my software?

[OldJack]

The rental property activity, gain/loss, up to the date of death would be reported on the form 1040 Sch-E. I would then show disposition/sale (at net book value) of the property on form 1040-4797 with zero gain and zero recapture. Truth is the 1040-4797 could be ignored and not filed but software likes to account for it. The estate then reports on form 1041 the sale at fair-market-value with zero gain or small loss due to commissions/closing costs paid.