I inherited rental property when my husband died. California has community property law. What is cost base : value of whole house or 1/2 (half) of value. Thanks Danu

[SweetieJean]

Did you own it jointly with him?

[Hal_Al · Accepted solution]

Whether  you owned  the property jointly or it was in his name only, your entire basis "steps up" to fair market value (FMV) on the date of death.

If you lived in a non community property state and owned the unit jointly, only half the basis would step up. For example if you originally purchased it for $100,000 and it is now worth $200,000, your new basis would be $150,000 in a non community property state and $200,000 in a community property state like California.

You get to start depreciation all over again, based on the stepped up value (in a non-community property state, the old depreciation schedule would continue on your original half, but start over on the inherited half).

[berry-ym]

How do I handle this in turbo tax?

[raldi]

In non-community property state, inherited half of jointly owned rentals.  Do i have to setup two different properties on each rental, one with "old" half-owner basis and depreciation, and a second one with new basis and zero starting depreciation? 

If so, Second question:  Do i split all the income and deductions between the two "properties"?

[Carl]

How do I handle this in turbo tax?

You'll enter it in the Assets/Depreciation section. Here's how it works.

Lets say you and your spouse purchased the property in 2010 and it's been a rental the entire time you two owned it.  You paid $100,000 for the property with $30,000 allocated to the land.

So that's $70K for the structure and that's what is being depreciated.

Then the $30K for the land is not being depreciated.

So for the sake of simplicity lets say your spouse passed away on July 1, 2019. An appraisal on the house puts the current value at $150,000 with $45K on the land and the remaining $105K for the structure.  Figure and write down the difference.

Total price paid was $100,000 and you got a $50,000 step-up in basis. That's a 50% increase of $50K.

TOtal allocated to land is $30K and stepped up to $45K. That's a 50% increase of $15K

Total allocated to structure is $70K stepped up to $105K. Thats a 50% increase of $35K

So in the assets/depreciation section of the program elect to "Add an Asset"

It gets classified as Residential Rental Real estate with an in-service date of the date your spouse passed away.

The total you'll enter in the COST box will be $50,000 and in the COST OF LAND box will be $15,000.

So in addition to the $70K that's already been depreciated a bit over the first 10 years you two owned the property together, now an additional $35K will be depreciated over the next 27.5 years with depreciation starting on the date your spouse passed away.

Does this help clear it up for you now? Any questions, then by all means please ask!