Depreciation of Investment Real Estate for Deceased Person

[riken822]

My father passed away in 2021 leaving my a rental property via a life estate (so there is no probate process- property transferred on date of death). TurboTax Premier for Mac computed a full year's depreciation for his taxes vice (what I would have expected) a pro-rated depreciation.  Is TurboTax incorrect or do I not understand the tax code correctly?

[Carl]

The program will figure depreciation up to the date you specify in the program, that the property was removed from service. So if you did not show the property being removed from service on a specified date in 2021, or some other disposition of the property, it will figure depreciation for the entire year.

Basically, you need to work through each individual asset and show it's disposition (probably show as converted to personal use) on the date of his passing.

When you enter the property on your tax return, your acquisition date will be one day "AFTER" the conversion date on his tax return. I'm not sure what your new cost basis will be. But I would expect it to be stepped up to the FMV of the property on his date of passing.

[Anonymous_]

@riken822 

Make sure you click the "Yes" button on the Special Handling Required screen.