Hi, My sister passed away in 2018 and left me partial ownership (other 1/2 owned by my brother) of a rental property that we then sold in 2020 for a profit. Since I've never reported this property, I technically did not take depreciation on the property. However, my passed sister has been taking depreciation. Do I need to report the total of depreciation she took?
Do I need to report the total of depreciation she took?
You don't need to report the depreciation your sister who passed took. The part you inherited that was owned by your sister was stepped up to its FMV on the date your sister passed and that eliminated any depreciation deductions she took.
Basically, you got a step up in the cost basis on the date your sister passed. (Not the date you acquired actual ownership.) . All prior depreciation taken by your sister prior to her passing therefore evaporated and basically "went away" for you. If you continued to rent out your percentage of the property you inherited, then you were required to take depreciation based on the stepped up cost basis, from the date you inherited it. When you sell the property, you are required to recapture that depreciation *you* took, and pay taxes on it, in the year you sell the property.