@Lynn59 , please accept my condolences on your loss.
(a) coming to your question about the rental property -- because you are NJ resident ( and as was your husband), NJ laws will determine who owned the prop i.e. was it marital property or solely his. Not knowing the antecedent of the situation and assuming that ONLY his name was on the title for a reason, one could argue that he owned all 100% of the asset and therefore FMV step-up would be applicable to the whole asset. Only you know the reason and the back ground.
(b) NJ being not a Community property state and under its "equitable ownership right" takes many factors into account while deciding on division of ownership ( such as in a divorce ) -- your lawyer would be a good source -- but again , you know the facts / intents etc. of the situation to determine whether it was his personal asset or marital asset.
(c) another issue in my mind ( I have found no caselaw or statute to help me here ) and that is the depreciable basis of the asset post a step-up. I recognize that the impetus for step-up was to allow transfer ownership in case of inheritance without taxation ( US has Estate and Gift tax but no inheritance tax as such ). Neither of the two statutes involved here directly ( section 1014 on basis adjustment and section 167 on depreciation ) address the issue clearly enough for my feeble brain. The issue is that when you increase/ adjust the basis of an income property how do you apportion the changed basis between depreciable basis ( improvements with a fixed life ) and non-depreciable basis ( land ) ? -->
( a) one obvious option is to consider this a new asset with new depreciable and non-depreciable basis and full life -- this is what would happen if this was a new owner.
(b) the other and more contorted option would be allocate the step-up increment between the two different bases ( Depreciable and Non-Depreciable ) and keep the life of the asset same.
My general preference is for the first option as it is cleaner and an accepted path for a new owner .
pk
