For this year, each existing "asset" (for both properties) should actually be turned into THREE assets.
- A new one with 50% of the original Basis, 50% of the "prior depreciation" and the original placed in service date. This is 'your' portion that you have previously owned and will continue to depreciate.
- A new one with 50% of the original Basis, 50% of the "prior depreciation" and the original placed in service date. Mark that "asset" as "disposed" and say you converted it to personal use on the date of your wife's death. That is your wife's portion before she died. This one will not carry forward to future years.
- A new one with 50% of the Fair Market Value on the date of your wife's death. The "placed in service" date would be the date of your wife's death. This is the stepped-up 50% that belonged to your wife.
After you are sure you have all of the new information, delete the old asset.
