John and Mary, a married couple, purchased residential rental property
on 06/30/1986 for $160,000. They chose to depreciate the $160,000 over 19 years
using the SL HY method.
Out of concern for what were high estate taxes at the time, on 10/22/1996 they
retitled their ownership of the property as tenancy-in-common, with each having
a one-half undivided interest. When the estate tax laws became more favorable,
they never thought to change back to joint tenancy.
07/28/2018 - John dies. Everyone assumes that their property was all held jointly
and there should be no need to probate John's estate. Over a year passes by and the
tenancy-in-common ownership is discovered and it is now necessary to probate John's
estate.
10/21/2019 - John's estate is probated and Mary, as the surviving spouse and sole
beneficiary of John's estate, receives the transfer of John's one-half interest
in the residential rental property valued by the county at $370,000 ($740,000/2).
Questions:
1) Can Mary begin depreciating the $372,870 one-half interest that was transferred to her name?
2) If so, what date would depreciation start? 07/28/2018 or 10/21/2019?
3) What method of depreciation and how many years?
4 If Mary were to hold the property for 2 years and sell the property for $1,000,000, how would
one calculate the capital gain tax and Unrecaptured Section 1250 gain?
Thank you,
Gary
