Husband died in 1998, home initially purchased for 90K, date of death home valued at 300k, in year 2008 the widow converted the property into a rental, she has been depreciating the property based on 60K, the estimated value of structure net of land value based on the 90K, by mistake, not the step up basis of 300K.

She sold the property last year and using her step up basis of 300K and improvements for basis of sale, the basis when reported on rental was reported erroneous.

My questions;

1. Should I be concerned about the basis, when the property was converted to a rental, I am going to add back the depreciation taken.
2. Should I amend the last two years of rental, to increase the basis to the step up basis, due to the incorrect reporting, before filing this year's return. We will file an extension and pay the tax on the sale.
3. File and show the sale with the step up basis, including improvements, and provide an explanation to list the step up basis and improvements or client keeps the records in case of questions later. Would an explanation be required with return?

I am trying to understand how to report the sale the right way, the IRS help is no longer available!