rental to personal

[DaveinTexas]

I couldn't find this subject on the board so I'll ask away. A taxpayer rents a home for 10 years and claims $18000 in depreciation. He then lives in the home for another 5 years. Taxpayer dies and leaves the home to his daughter.

Daughter sells the home 2 years later. If the property is sold for a gain, will the portion of the gain that represents the recaptured depreciation be taxed at the current maximum rate of 25%, barring no changes in the law?

We are trying to figure out a way to avoid this tax, but it is looking hopeless. I suppose he could burn down the house!

TIA.

[Jiggers]

Stepped-up Basis on house

I couldn't find this subject on the board so I'll ask away. A taxpayer rents a home for 10 years and claims $18000 in depreciation. He then lives in the home for another 5 years. Taxpayer dies and leaves the home to his daughter.

Daughter sells the home 2 years later. If the property is sold for a gain, will the portion of the gain that represents the recaptured depreciation be taxed at the current maximum rate of 25%, barring no changes in the law?

We are trying to figure out a way to avoid this tax, but it is looking hopeless. I suppose he could burn down the house!

TIA.

Wouldn't there be a stepped-up basis on the house when the taxpayer died? All depreciation is forgiven and the daughter gets it at the FMV on the date of death.

Did the daughter rent the house out or did she live in it as her residence?

If it is her residence, then the gain would be calculated based on the inherited value. If residing in there 2 out of 5 years, then she would get the Sec 121 Residential exclusion.

If she rented it out, the depreciation should have been on the inherited basis. That portion would be recaptured at the 25% tax rate, assuming a profit on the sale.

[Roland Slugg]

Fresh start

Agree ... everything starts out fresh in the hands of the daughter and based on the property's FMV as of the deceased's DOD.