I am also assuming you live in a community property state where you get to step up 50% of the value, and your wife's share of depreciation basically just "evaporates". Lets look at the asset/depreciation list of any one property. I'll call that property A for now.
As you start working through the property you'll come to a screen, "Do any of these situations apply to this property?" Change nothing on that screen and just continue working through.
Elect to Edit/Update the Assets/Depreciation section and work through to the "Your Property Assets" screen.
In there, you have one single asset which is the property itself. Elect to edit it and start working it through.
On the "review information" screen, change nothing. Doing so "WILL" screw up the depreciation history, big time.
Write down the amounts in the COST and the COST OF LAND box, and do the math to figure out what percentage of the COST is allocated to the land. You'll need that percentage figure later.
Also write down the amount shown in the "prior deprec." box, as you will need it too. Then continue.
On the screen "Did you stop using this asset in 2022?" click YES.
On the "Disposition Information" screen enter the date of your wife's passing, and continue.
On the "Special Handling Required?" screen, click YES. (If you click NO, then you will be *FORCED* to enter sales information. Obviously, you did not sell this property.)
On the screen "Depreciation Deduction Amount" you will see the depreciation deduction for tax year 2022 only up to the date of your wife's passing. Write that figure down. You need it. Then continue.
Now to get the numbers you need for entering a new asset.
Start by figuring the "temporary" new cost basis.
Begin by adding together the "prior deprec." and the 2022 depreciation amount. This gives you the total amount of depreciation taken up to the date of her passing. Divide that total by 2 to get the depreciation amount allocated to each of you. (Your wife's depreciation "evaporates". Your share does not.)
Now subtract your share of the depreciation from the amount you wrote down that was in the COST box. This gives you your new (temporary) cost basis. Take note at this point, the amount allocated to the land (in the COST OF LAND box) does not change yet. (but it will)
Now to that new COST, add your stepped up basis and write down that total labeling it something like "New Cost Basis" or whatever.
Remember that percentage you got earlier? Multiply the New Cost Basis by that percentage, to give you the stepped up value of the land.
In TurboTax, click the Add Another Asset button to add the property anew with an "in service" date that is one day after your wife's passing. MACRS class is Residential Rental Real estate of course, and you'll enter your newly figured amounts in the COST and COST OF LAND boxes. Depreciation starts over from year 0 and of course will be pro-rated based on this new "in service" date.
Now if you have any other assets listed for this property, the same basic procedure applies to those other assets. But more than likely you won't have to deal with COST OF LAND on those other assets. That'll make it easy.
Once done with property A, perform the same acts above for property B.
This is why I can't understand why @AmeliesUncle is saying you'll have 3 entries for each property. If the only thing listed in the Assets/Depreciation section is the property itself, I would expect only 2 entries. The original old entry where depreciation stops on the date of your wife's passing, and the new entry with a stepped up cost basis and depreciation starts anew the day after her passing.
