1041 Estate rental depreciation

[s d l]

My mother in law passed away on Nov 2024, she had a rental property in the trust. The rental is still under the trust so we are filing a 1041 estate tax return for the 2 months of rental income received in 2024. Questions on the depreciation:

1. Do we use the step up basis for the depreciation? or the rental's old valuation?

2. We're assuming that only 2 months of depreciation will be deducted on the 1041, but Turbo tax is calculating 12 months of depreciation even if we put "started using the asset on 11/1/2024", how can we make Turbo tax show 2 months depreciation only? 

[M-MTax]

If this was a typical grantor trust that became irrevocable on the death of your mother-in-law, then you would use a stepped-up basis with the fair market value of the property on the date of death being the new basis for depreciation. The recovery period for residential rental property would be 27.5 years.

I'm not sure about the Business product, but the initial trust return would have a beginning date in November of 2024. However, if you entered an earlier initial date (e.g., 1/1/2024 or earlier), then the program is probably calculating a full year of depreciation.

I'm sorry for your loss.

[RobertB4444]

Please clarify for me - if the property is in the trust why are you filing an estate tax return for the depreciation or rental income?  

The property should be added to the trust and transferred as of her date of death as though the trust had purchased it for it's value at her date of death.  The estate should not be involved at all since that is the point of the trust.

@sdliong 

[s d l]

@RobertB4444 

The rental property is under the trust, it hasn't been transferred to the beneficiary yet. Our lawyer said we need to file a 1041 estate tax return because the rental property has income.

do we need to distribute the income via K-1? or can we just pay the income tax via the 1041? 

[s d l]

@ M-MTax

do we need to issue a K-1? it seems simpler to pay the income tax via the 1041 instead of issuing a K-1 and then putting it in our1040. If there's something wrong with the 1041, we only need to revise the 1041 and our 1040 wont be affected anymore.

[M-MTax]

If the trust pays any and all tax due, there is no need to issue a K-1.