FMV Adjustment on Form 4562

[duanecpa]

Need to adjust depreciation on rental real estate - community property state. FMV = FMV at date of death. Date of death = 7/21/2015. Need to adjust to FMV for depreciation purposes for rental real estate.

Assume original cost = $55,000, accumulated depreciation = $30,500 net book value = $24,500.

Improvements FMV = $135,000 = inherited property FMV at date of death.

depreciation = s/l over 27.5 years.

on 7/21/2015, how does one make the Improvements FMV the basis of the rental real estate on the 2015 4562 post 7/20/2015?

Do you allocate the FMV over the cost elements on the pre-7/21/2015 Form 4562 to arrive at the post 7/20/2015 4562??

Do you treat the cost basis elements: cost = $55,000, accumulated depreciation = $30,500 as a sale? If so, what would be the sales price?

Any suggestions with citations?

Thank you.

Duane

[BHoffman]

HI Duane - you might find your answer in Pub 551 and/or Treas. Reg. 1.1250-3(b)(2)

[Burke]

Need to adjust depreciation on rental real estate - community property state. FMV = FMV at date of death. Date of death = 7/21/2015. Need to adjust to FMV for depreciation purposes for rental real estate.
Assume original cost = $55,000, accumulated depreciation = $30,500 net book value = $24,500.
Improvements FMV = $135,000 = inherited property FMV at date of death.depreciation = s/l over 27.5 years.

on 7/21/2015, how does one make the Improvements FMV the basis of the rental real estate on the 2015 4562 post 7/20/2015?
Do you allocate the FMV over the cost elements on the pre-7/21/2015 Form 4562 to arrive at the post 7/20/2015 4562??
Do you treat the cost basis elements: cost = $55,000, accumulated depreciation = $30,500 as a sale? If so, what would be the sales price?

Any suggestions with citations? Thank you. Duane

Based on the info in your post, I am assuming you are asking this because property was jointly owned and one of the owners died so ownership has passed to the survivor? It would not be treated as a sale if this is the situation.

[TaxGuyBill]

I agree, no sale.

For simplicity, I would 'sell' the current asset for BLANK dollars to stop the depreciation (at least that is how to do it with ProSeries), then start a brand-new asset with the full stepped-up basis starting on the day after death.

[Burke]

Well, if it was jointly-owned property and only one died, only half would get a stepped up basis.

[BHoffman]

Well, if it was jointly-owned property and only one died, only half would get a stepped up basis.

I think in a community property state, the entire property gets the stepped up basis.

From Pub 551:

"Community Property

In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), married individuals are each usually considered to own half the community property. When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return.

For example, you and your spouse owned community property that had a basis of $80,000. When your spouse died, half the FMV of the community interest was includible in your spouse's estate. The FMV of the community interest was $100,000. The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). The basis of the other half to your spouse's heirs is also $50,000.

For more information on community property, see Publication 555, Community Property."

[taxea]

Interesting, I posted a calculation to determine the correct amount to use and how to do it but the post disappeared. What's up with that?

[Burke]

I think in a community property state, the entire property gets the stepped up basis.

That's terrific! How can we get declared a community property state? (smile) When you think about it, Joint Tenants by the Entirety means an undivided interest in the property under the law. So it makes sense in that regard.

[BHoffman]

That's terrific. How can we get declared a community property state? (smile) When you think about it, Joint Tenants by the Entirety means an undivided interest in the property under the law. So it makes sense in that regard.

Living in AZ has its ups and its downs