Re-Depreciate After death of spouse - California

[JWebb2020]

I have had a rental property for about 40 years so it doesn't currently have depreciation on it. My wife passed away last year.  Do I start a new asset on the date of death with the new property value - the value of land?  I just had it appraised shortly after so would I just use the % of house vs land price on the property tax bill to figure out the amount?

[Carl]

I have had a rental property for about 40 years so it doesn't currently have depreciation on it.

Just to clarify. Yes it does have depreciation on it. The property was fully depreciated after 27.5 years as a rental property. What you mean to say, is that the property is fully depreciated. Therefore the cost basis on the property is the value of the land only, with ZERO on the structure, and you have not taken any further depreciation on it for about 13 years now, since you can't depreciate it's value to less than $0.

My wife passed away last year.

My condolences. If your wife was not listed as an owner on the deed, then nothing changes. Otherwise, you get a step-up in the entire basis of the property and depreciation on the new basis starts over from day 1 (the date of her passing) over the next 27.5 years.

Do I start a new asset on the date of death with the new property value - the value of land? I just had it appraised shortly after so would I just use the % of house vs land price on the property tax bill to figure out the amount?

If the appraisal you had done after her passing by a qualified property appraiser (not the county property tax appraiser) breaks out separate values for the land and the structure, then you use those values, regardless of what the property tax bill says about the percentage of land ratio. Otherwise, of the appraised value, you use the tax bill only to figure what percentage of the appraised value gets allocated to the land.

So on your 2019 tax return you will have two assets listed.

The first asset is for the property itself which is already completely depreciated to zero.

The 2nd asset will be for the same property as the first asset, with the new asset values of the appraisal you got after your wife's passing. After you enter that 2nd asset (almost a duplicate of the already depreciated 1st asset) then you can delete the first, already depreciated first asset.

Additionally, if you have any other assets listed, you can delete them completely. That appraisal you got includes those other assets. So no need to continue depreciating them, or listing them at all.  If you'd like an example for clarification, just let me know.

[TomYoung]

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[jpv78]

Hi, thanks for the above.

For the second entry of the rental property with new step up basis for depreciation, do I state it was purchased new or other?

Do I need to enter any of the original purchase information at any point of the depreciation? For example, where it now asks for original purchase price, available date, and purchase date? Should this be thew new value or the original? Thanks.

[Carl]

Don't understand why you're asking all these questions. It can't be any simpler. In the assets/Depreciations ection click "Add an Asset". Select rental real estate, then residential rental real estate.

Then enter a property description. In the COST box enter the entire FMV of the property on the date of the original owner's passing. Then in the Cost of Land box enter the amount of COST that is for the FMV of the land on the date of her passing. For date purchased/acquired it's the date of her passing.

Then it's purchased new, 100% business use and the start use date is the date of her passing.

Then click Continue until returned to the assets lists. You're done.

[Opus 17]

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@Carl wrote:

My condolences. If your wife was not listed as an owner on the deed, then nothing changes. Otherwise, you get a step-up in the entire basis of the property and depreciation on the new basis starts over from day 1 (the date of her passing) over the next 27.5 years.

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Since this was in California (a community property state) the taxpayer gets a fully stepped up basis at 100% of FMV,  But in a non-community property state, wouldn't the taxpayer only receive a stepped up basis on 50% of the property?  (Asking for others who will read this but are not in a community property state.)

And in the same vein, since this is a community property state, wouldn't the spouse have owned half no matter how it was titled, so the taxpayer inherits the basis either way?

[Rick19744]

I concur with @Opus 17 clarification on both points.

See the attached brief discussion:

https://www.calcpa.org/public-resources/ask-a-cpa/home-property/tax-issues/do-i-get-a-step-up-on-my-...

[M-MTax]

me too except it's got to be held as community property and that can get complicated