Capital gains basis on rental with portion of ownership inherited

[KerryOn]

I have been managing a rental that both my father and I have own (63.87% and 36.13% respectively) since 2008 for a purchase price of $192,700.  My father passed 12/24/23 and I and my two sisters inherited his portion (deed transfer sometime after probate in March 2024) divided 33.13%/ 15.37%/ 15.37% respectively.  The FMV at the time of inheritance was $500k.  We are looking at selling next spring 2025 (tax & current market reasons) and, due to housing prices going down a bit since 12/24/23, our net will probably be less than the inherited FMV. 

What I’m trying to figure out is the tax impacts of a sale for each of us.  Specifically how to determine basis and capital gains/loss. These are my initial thoughts:

1. There are basically two separate basis calculations.  One for me based on my original 36.13% investment and the other for each of us based on the inherited FMV of our inherited portions.
2. I would have capital gains on my initial investment.
3. I and my sisters would have a capital loss on the portion we inherited (presuming sales price less sales costs are less than the inherited FMV.)
4. Also, regarding depreciation recapture.  I’m presuming I’ll have some on my original investment, but on the inherited portion none of us will have any depreciation recapture.  
5. Also, we are making about $15k in capital improvements to the house this Fall (new flooring, windows & updated bathrooms), in anticipation of the Spring 2025 sale.  The house was still rented Jan-March 2024, but we have not rented it since.  So we’ll need to report the income/expenses on our 2024 tax returns.  But do we need to capitalize and depreciate the improvements made in 2024 on the rental return, or would they just become an addition to the basis upon the sale in 2025?
6. How would I in particular present/report the sale of the rental in 2025?  Do I just combine my original basis and my share of the stepped up basis and net that against my portion of the overall sale proceeds?

Thanks!

[M-MTax]

     You and your sisters need a tax pro. It's complicated due to your interest and the inherited portion.

     BTW, your sisters inherited their shares on the date of your father's death not the date of the deed transfer.

     Is the property rented now? Is the property available for rent? That makes a difference.

     Depreciation deductions for 2024 are taken AT LEAST through the end of the 2024 rental period.

     The $15k improvement is added to basis BUT is NOT depreciated unless the property was rented or available for rent at the time.

     Sorry for your loss.

[KerryOn]

Thanks for your reply. The house is not currently rented nor available for rent. The FMV was established at the date of death12/24/23 and my sisters and I inherited it as of that date.  So, insofar as the capital improvements, what you are saying is that I’ll do a rental return for 2024 with income and expenses through the last rental date, including depreciation established for any improvements up to that date.  After that any improvements would only go toward the basis in the sale.  Any thoughts on the depreciation recapture question?

[M-MTax]

     Cost of capital improvements are added to the basis but not depreciated because the property is no longer in rental use. 

     Basis is marked up to FMV on the date of death and total depreciation deductions to that date disappear. Recapture post death would be in play though.

[Carl]

Value at time of inheritance is irrelevant. The cost basis will be it's FMV (or portion thereof) on the date of his passing. Doesn't matter when the deed work was done.
Your situation is complex, and even more so if your state taxes personal income. You will need to seek the services of a tax professional for this.

[M-MTax]

Value at time of inheritance is irrelevant. 

It's the same date. The date of passing is the date the property was acquired from a decedent for tax purposes.

[Carl]

The date of passing is the date the property was acquired from a decedent for tax purposes.

Most don't understand that. They think the date of inheritance is the date the heir's name is put on the deed. So clarification is necessary.