Inherited rental real property

[appelman]

A client held fully depreciated rental real property as community property with her spouse. Upon death of the spouse, does the step up mean that all the earlier depreciation is "forgiven," and you start over depreciating the new stepped-up basis? And, if so, what about appliances and such that are currently being depreciated? Would you just fold them into the stepped-up basis of the property?

[Maribeth]

A client held fully depreciated rental real property as community property with her spouse. Upon death of the spouse, does the step up mean that all the earlier depreciation is "forgiven," and you start over depreciating the new stepped-up basis? And, if so, what about appliances and such that are currently being depreciated? Would you just fold them into the stepped-up basis of the property?

The basis of the property is redetermined as of the date of the death of the spouse. The new basis is "New". You start depreciation all over again, there is no recapture of the "old" depreciation.

I have never pulled appliances, etc out of the new basis. Others may do so but I have not.

Maribeth

[Burke]

Wouldn't it just be 1/2 of the basis that is stepped up?

[WhiteOleander]

Wouldn't it just be 1/2 of the basis that is stepped up?

Not in a community property state. In almost all cases, the surviving spouse receives the full stepped-up basis. They have to include the full FMV of all the community property in the decedent's estate to determine if there is an inheritance tax. So, the spouse get the full step up.