John and Mary, a married couple, purchased residential rental property
on 06/30/1986 for $160,000. They chose to depreciate the $160,000 over 19 years
using the SL HY method.
Out of concern for what were high estate taxes at the time, on 10/22/1996 they
retitled their ownership of the property as tenancy-in-common, with each having
a one-half undivided interest. When the estate tax laws became more favorable,
they never thought to change back to joint tenancy.
07/28/2018 - John dies. Everyone assumes that their property was all held jointly
and there should be no need to probate John's estate. Over a year passes by and the
tenancy-in-common ownership is discovered and it is now necessary to probate John's
10/21/2019 - John's estate is probated and Mary, as the surviving spouse and sole
beneficiary of John's estate, receives the transfer of John's one-half interest
in the residential rental property valued by the county at $370,000 ($740,000/2).
1) Can Mary begin depreciating the $372,870 one-half interest that was transferred to her name?
2) If so, what date would depreciation start? 07/28/2018 or 10/21/2019?
3) What method of depreciation and how many years?
4 If Mary were to hold the property for 2 years and sell the property for $1,000,000, how would
one calculate the capital gain tax and Unrecaptured Section 1250 gain?
It probably seems that way, but it's really a simplified version of my mother's situation. A year after my father died I was surprised to find out their rental property, which was actually 6 residential rental condos, were held as tenancy in common instead of joint tenancy. So we got an attorney to transfer my father's former one-half interest to my mother. I'm doing the taxes for her and I need to know if going forward I can depreciate the $370,000, when to start, and how. I'm not sure if I can start on the date of my father's death by virtue of Operation of Law, or when the actual transfer took place. There is also some question in my mind about when the "Section 125 Unrecaptured Gain thing" became law and how I should prorate that among the 19 years of depreciation. when sell. That's why I started out "simple". Any advice on any part of this will get me closer. Thanks, Gary