Divorced Spouse Gets Rental Home

[ruthc]

1. Married couple has 100% rental house aside from their personal home for about 27 yrs.
2. They divorce (2004) and spouse (my new client) moves out of personal home and gets the rental house which she moves into in 2004. She buys him out for the rental home for $30K.
3. The rental house was depreciated at 100% for the 20 yrs. they were married (basis of $124K). When she moved into the rental house in 2004 the rental was depreciated at 67% ($83K) with the original basis of $124K.
4. My questions are:
a) Should the basis have changed by her $30K buyout?
b) Does the beginning of 27.5 years recovery period change to the date of her taking over the rental house or does it just continue from the original purchase date about 27 years ago?

If the depreciation of the house should continue from 27 years ago, she would be almost done depreciating it. If it should have started over when she bought out her spouse she has a lot more years left. Unfortunately, the client doesn't understand too much and doesn't have the earlier returns to look at.

Thanks for any help!

[Lion]

You said she moved into the formerly rented house. So, no more depreciation. And, property settlements incident to a divorce do not change the tax situation, their basis is now her basis (she just has the other half of the house as well as her half, and he has $30,000).

[ruthc]

Thank you!

Thanks a lot. I think I am all set for now.

[sandigi]

and if she sells?

You said she moved into the formerly rented house. So, no more depreciation. And, property settlements incident to a divorce do not change the tax situation, their basis is now her basis (she just has the other half of the house as well as her half, and he has $30,000).

Lion, as I was reading Ruth's original post, I was thinking the same as your answer. But then I wondered what if she sells? Is this right?
She can exclude the gain up to 250,000 but the part of the gain that is the depreciation after 5/6/1997 cannot be excluded?