Investors & landlords

It depends.  It's not clear when the date of death occurred, however since you are trying to figure out how to enter the stepped up basis for half of the property then the easiest way to handle the sale is not to add a second asset.  Instead, add the stepped up or increased value amount on the date of death, for half the rental house to your expense of sale for the original house asset.  This will provide the correct capital gain and depreciation recapture results for the sale.

The depreciation recapture should apply to the entire amount of depreciation used before the sale if you jointly reported the rental activity prior to death.

That being said, first we will look at how the sales price and sales expenses should be applied to all assets involved in the sale.  

The IRS requires that the selling price be proportionately prorated to arrive at a selling price for each 'piece' of a rental property since many assets can be placed in service at different times, such as improvements.

The selling price should be prorated for each asset then entered for each asset when you indicate they were sold or disposed of. You will not lose the remaining depreciation because you will use the remaining basis against the selling price to determine gain or loss. 

To figure out the selling price for each asset:

1. Take the current basis of each asset against the total combined basis of all of your assets to figure out the sales price for each one; OR 
2. Determine a fair market value for each asset against the total value of all assets to figure out the sale price for each one.  

Use the original cost of each asset listed on depreciation, add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Income & Expenses
2. Under Your income and expenses, scroll down to
3. Rental properties and royalties, click Edit/Add
4. Do you want to review your rental?, click Yes
5. Under Rent and Royalty Summary, click Edit
6. Click Update to the right of Assets/Depreciation.
7. Do you want to go directly to your asset summary?, click Yes and Continue
8. Click Edit to the right of each asset to be disposed
9. Go through several screens until you get to Tell Us More About This Rental Asset
10. Click on This item was sold…….   And continue to answer the questions

You might also review information here.