Let's start with the rental and work our way through.
Rental house belonged to your parents. It was being depreciated on their return based on values when it was put into place as a rental.
Your father died in 2017- I am very sorry for your loss.
Your mother continued to claim and depreciate the property as always. The only change is her basis in the house now has a stepped up basis for dad's half.
Mom sells in 2020.
Let's do an example:
- Couple bought house for $100,000 in 2010 and began renting it out.
- 2017 house has appreciated to $150,000 when Dad died.
- Mom's basis in the house is her original $50,000 + $75,000 inherited value = $125,000
- 2020 Sell house for $160,000
- Pretend depreciation of $30,000 for 10 years
Gain is sale price - cost basis +depreciation
$160,000 - $125,000 + $30,000
Gain of $65,000 on tax return
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