Selling rental property owned by estate

[s d l]

My mom has a rental property in her trust, she passed away in 2024. The rental is still in her estate, not yet transferred to me yet. The rental was appraised at $500,000. 

1. If we keep it in the estate and sell for $500,000, will there be any capital gains? not sure if the cost basis will be the FMV of $500K or the original purchase price since the ownership hasn't changed yet.

2. Can we deduct the selling costs against other income like rental income and IRA distributions?

3. Is there going to be any depreciation recapture? since it's still owned by the estate

[Hi Palms]

The rental is in her trust, NOT her estate. There is a difference.

Anyway, assuming the trust was a grantor trust while she was alive and became irrevocable (nongrantor) when she passed, the trust will get a stepped up basis and there will be no depreciation recapature at that point.

If the trust continues to use the property for rental use, depreciation will start over on the date of death at a new recovery period and basis (FMV on the date of death).

The trust would deduct any selling costs from the sales price first. If the property is being used for business/rental purposes at the time of the sale, any net loss on that sale could be used to offset other trust income.

[Hi Palms]

Also, when the property is converyed out of the trust in kind, then you (and other beneficiaries, if any) will take the trust's basis at the time the property is transferred.