Stepped up Basis

[Snaggletooth]

Situation: Decedent dies with $150,000 historical cost in a building, of that amount, some $35,000 has been depreciated. Building is now worth $400,000, and heirs are able to sell the building through the estate for that amount.

Question1: Does the $35,000 have to be recaptured?

Question2: Does the answer above change if the heirs are not able to sell while building is in the estate, but sell after the building has been distributed to them from the estate as joint owners?

[Bees Knees]

You only recapture depreciation to the extent of gain realized. Since there is no gain due to step up of basis, there is no depreciation to recapture.

But even that point is moot, because depreciation does not carry over in an inheritance situation. Basis of inherited property is FMV. Period. No adjustments needed for depreciation from its prior life. The FMV basis carries over to the beneficiaries even if the property is distributed to them after the estate is closed.