Depreciation and Rentals from date of death forward on 1041 to final return

[wormie]

What are the tax codes for depreciation and how it's treated after an owner dies while having a rental house, which is sold couple years later  I believe the estate that was started with the EIN provided upon final return will distribute to beneficiaries all cash accumulated less any expenses.  Would there be a tax liability upon that final report 1041?  I also believe depreciation prior to estate established because of the step up in valuation for the estate, any prior depreciation vanishes, and the estate starts anew with depreciation.  That's the depreciation that is recovered once the unit is sold?  Seeing different responses to this type of problems, thus asking if anyone knows the IRS code regs to research this. 

[M-MTax]

Accumulated deprecation prior to death disappears because the basis is stepped up to fair market value on the date of death. That's Sec 1014 

[M-MTax]

If you want to read the Code for trusts, estates, and benes that would be here 

[M-MTax]

Would there be a tax liability upon that final report 1041?

     If the estate had been taking depreciation deductions which reduce basis and sold for more than the adjusted basis then either the trust would pay any tax due or pass the gain along to the benes.

    Of course every year the estate has income from the rental you need to file a 1041 and the estate needs to pay any tax due on the net rental income or the benes do. If you are really unsure of the process you should definitely seek professional help with this.....sure beats getting sued by the benes if you mess up trying to do it yourself.

[wormie]

Thanks,

What I'm looking for is to determine,  say the property was rented for 10 yrs by the owner and the owner passes away, the property is still being rented until sold.  I kept reading conflicting posts on the depreciation that it carrys over into the estate, and it doesn't carry over into the estate, as the estate would assume a new vaulation for the property upon death.  But all that previous depreciation is what I'm looking at is it carried over or does the estate start anew with the new valuation?  I do have an accounting firm that's going to do the final report, but for closing probate and making any distributions on the sale to beneficiaries, we'd like to know if there was a posibility of a tax liability as that return won't be done til the end of the year (2024 submitted in 2025)  That's what I'm looking at, is prior depreciation carried into the estate might be a better way of asking.

[M-MTax · Accepted solution]

But all that previous depreciation is what I'm looking at is it carried over or does the estate start anew with the new valuation?

     The previous depreciation does NOT carry over to the estate.

     The estate starts with a new valuation.......FMV on date of death......and new recovery period....27.5 years.

[M-MTax]

I kept reading conflicting posts on the depreciation that it carrys over into the estate

Whatever you read that it carries over to the estate is WRONG.....it does not carry over.