For several decades, I've been managing a residential rental property held in a revocable living trust for a family member. When the grantor passed away in 2015, the living trust converted to an irrevocable trust and was assigned a tax ID number. The property received a stepped-up basis, with depreciation starting anew as of that date. None of the yearly rental income has been distributed, but instead held entirely in the trust. This property was the trust's final asset. In preparation for selling it, the successor trustee executed a Deed of Distribution in mid-September 2023, transferring ownership to the beneficiary. As of January 2024, the property still has not sold.
It is my understanding that the property does not receive another stepped-up basis. Instead, the beneficiary assumes the basis established in 2015, along with the accumulated depreciation since 2015, and will be responsible for all depreciation recapture once the property sells. My question regards how the depreciation deduction is properly claimed on 2023 tax returns.
Is it as simple as allocating the depreciation amount from 1/1/23 to 9/15/23 to the Trust's 1041 Schedule E, and the amount for 9/15/23 to 12/31/23 to the beneficiary's 1040 Schedule E, or is there more to it?
Thanks for the assist!
