Can a surviving spouse in Nebraska do step-up basis on rental properties?

[deerick84]

My in-laws own several rent houses in Nebraska (where they lived).  My father-in-law passed away last year.  Can my mother-in-law do a step-up basis and begin depreciation over on the properties?

[MichaelL1 · Accepted solution]

 Yes, the surviving spouse would get a stepped up basis, however on only half the property.  

If jointly held the surviving spouse would get a stepped up basis on half the property. 

It is important to know if the property was jointly held. 

The rules differ for community property states (which Nebraska is not one). 

Below is an excellent article on this (it also cites the tax code).

http://www.paelderlaw.com/widows-take-your-step-up-to-reduce-taxes/

[deerick84]

What is done in regard to depreciating the rental properties?  Does it start all over again with the new basis?

[MichaelL1]

Let me do some research and I'll post a comment on Tuesday 2-14-17

[MichaelL1]

<a rel="nofollow" target="_blank" href="http://forum.thetaxbook.com/showthread.php?10008-basis-for-inherited-rental-property">http://forum.t... a look at this link.  this is a complex area of the tax law and can be very confusing.  Most of what I am seeing says to start over with new basis.

[deerick84]

By the way, the properties were jointly owned/held.

[MichaelL1]

You are going to have to review the court case cited in the answer along with link in my last comment.  Basically your original half basis will stay the same, the stepped up basis on the other half will increase to FMV and would have no accumulated deprecation on it.  Best advice is to get a sheet of paper and lay this all out, then after get one basis enter it and show how much accumulated was taken on your half.  Confusing I agree, but take your time.

[176313]

Can I claim my spouse father (father in-law) support? income tax

[CatinaT1]

Maybe, if you/he meet all the rules below.

You can claim a child, relative, friend, fiance (etc.) as a dependent on your 2019 taxes as long as they meet all of the following requirements :

• You provided more than half of their financial support. More info
• They made less than $4,200 in gross income during 2019
• They live with you the entire year 
• They are a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren't (or won't be) claimed as a dependent by someone else.
• They aren’t filing a joint return with their spouse.
• You are not being claimed as a dependent on someone else's return.

[Carl]

Can a surviving spouse in Nebraska do step-up basis on rental properties?

Yes. But since NE is not a community property state, the step up on occurs for the deceased 50% of the cost basis. Also understand that under no circumstances and with no exceptions will you change the original entry. TO reiterate, you will *NOT* change the original entry. You will add a new entry in the assets/depreciation section. Here's how.

Let's assume depreciation on the property started in 2009 meaning that at the time of the spouses passing there was already 10 years of depreciation taken.

If your cost basis is $100,000 with $30,000 allocated to the land, that means depreciation occurs on $70K over 27.5 years.

Spouse passed in 2019. An appraisal on the property performed by a qualified, licensed and certified property appraiser values the property at $150,000 with $40,000 allocated to the land.

That's an overall increase of 50% on the entire property (land and structure) and a 25% increase on the land only. The surviving spouse gets a step-up on half of that.

In the assets/depreciation section a completely new asset is entered. You can label it something like "basis increase thru inheritance".  Give it a cost basis of $25,000 (one half of the total increase to the entire property) and $5,000 of that allocated to the land (one half of the 25% increase in the value of the land). Depreciation starts on the date of passing of the deceased spouse for the next 27.5 years.

[tagteam]

The problem with the above post is that it confuses the fair market value of the property at the date of death with the increase in value on the date of death.

The stepped-up basis would, of course, be the fair market value as of the date of death, not only the increase in value. Therefore, the stepped up basis would be $55,000 ($150,000 - $40,000 (land value) = $110,000 (building value) divided by 2), not $20,000 ($25,000 less $5,000 allocated to land).