If you inherited the property in 2018, there is no prior year's depreciation. Your cost basis is the FMV on the date the original owner passed. All depreciation taken by the previous owner just "evaporates" and goes away into thin air. Depreciation starts on your (I stress "YOUR") in -service date. That date is the earliest date of:
- The date you started collecting the rent, if a renter was already in the property. This date can not be before your name was placed on the deed. All rental income received prior to your name being on the deed would have been paid to the estate of the deceased person you inherited it from.
- The date you put the "FOR RENT" sign in the front yard, if there was no renter in the property at the time your name was placed on the deed. Depreciation starts on the first day a renter "could" have moved in. Doesn't matter if it took you 3 months to actually get it rented out either.
So your first year of deprecation will be 2018 and it will be pro-rated based on what month the property was "in service" under your name. Depreciation is based on the lesser of:
1. What you paid for the property
2. The FMV of the property at the time the property was placed in service.
Now since you inherited the property, you automatically get a "step-up" in the cost basis. So for you depreciation will be based on the lesser of:
1. The FMV of the property on the date the person you inherited it from passed away.
2. The FMV of the property on the date the property was placed "in service".
So in your case, the lesser amount will be the FMV of the property on the date the person you inherited it from, passed away. The property will be depreciated over 27.5 years with 2018 being your first year of depreciation.
