Do I delete entry in TT and add new cost basis based on 50% of FMV?

Sorry, but the way @AmyC worded her initial response is misleading.

Under no circumstances will you delete the original asset. Since the property was jointly owned by a married couple that filed joint in the past, the original asset remains unchanged.

Since N.C. is not a community property state, your step-up in basis is 50% of the FMV on the date of your spouse's passing.

rental house bought in 1985 for 80K. Building value of $60K has already been fully depreciated. On date of death, FMV was $200K.

So that's an increase of $120K (200K minus 80K) and your spouse's 50% of that is $60K. So lets work the math for the correct depreciation amount.

Of the orignal figures at purchase, 75% ($60K) was allocated to the structure and that's the amount that was depreciated.

Next, 75% of $60K (Your spouse's 50% of the basis increase) is $45K

So you simply enter a new asset with a COST of $60K and COST OF LAND is $15K.

The difference of $45K is what gets depreciated over the next 27.5 years.

Under no circumstances and with no exceptions will you delete anything from the Assets/Depreication section. If you do, then all the depreciation already taken is lost and gone forever, and future depreciation will be double-dipping. (which is fraudulent) If you do delete it, then you will find yourself in a never-ending nightmare tax-wise when one of two things happens in your future.

 - You sell the property

 - You pass away. (This has the potential to create a nightmare for your heirs, though not common)