My parents purchased residential rental condos in 1986 for $160,000. Ownership was titled as tenancy in common with each having 50% interest. The entire $160,000 was fully depreciated over 19 years. My father died in July, 2018. His estate was probated in October, 2019 and my mother inherited his 50% interest valued at $370,000 ($740,000 x 50%).
1) Going forward, can my mother now depreciate the $370,000 one-half interest that was transferred to her name?
2) Should the depreciation begin when my father died in July, 2018 or when his 50% interest was transferred to my mother in October, 2019?
Thanks,
Gary
She gets a step up in basis for the 50% she inherited as of the date of death....the new basis for depreciation of the inherited 50% is the fair market value as of the date of death and the prior depreciation deductions disappear....the basis of her fully depreciated 50% is unchanged.
There's absolutely nothing to depreciate here. Not one penny. The "step-up" in cost basis will only come into play when she sells or otherwise disposes of the property. The higher basis will reduce any taxable gain realized when she sells it.
Is that because she is the spouse of the decedent, or because she already held the other 50% interest in the tenancy in common ownership? If my father had willed his 50% interest to a "stranger", I assume that "stranger" would then be able to depreciate the $370,000 against rental income going forward. Thanks for your input.
Gary
She gets a step up in basis for the 50% she inherited as of the date of death....the new basis for depreciation of the inherited 50% is the fair market value as of the date of death and the prior depreciation deductions disappear....the basis of her fully depreciated 50% is unchanged.
Thanks for clarifying that @smarttees
What I meant is that "your" 50% is already depreciated. Nothing concerning that "starts over". But since you "never" depreciated the other 50% before, you will do so now. But you'll only depreciate the 50% you inherited from your deceased spouse.
If the house was valued at $740,000 on the date of his passing, she inherited his $370,000 share. ***BUT*** she will not depreciate the entire $370,000. That's because a portion of that inheritance is for his 50% of the land. As you know, land is never depreciated. So when this is entered in the TTX program as a newly acquired asset for the same property, it's classified as residental rental real estate and a portion of that $370,000 is allocated to the land.
If you need help with the math to figure out the amount allocated to the land, I can help with that. All I need to know is how much of her share (I presume $80,000) is presently allocated to the land in the TurboTax program. It will be same exact percentage of the $370,000 that will be allocated to the land on the newly entered asset.
$370,000 against rental income going forward. Thanks for your input.
Thank you smarttees and Carl for your help.
The residential rental property is actually six 1BR condominiums. The county Board of Assessments shows the combined assessed values as:
Assessed Land 0
Assessed Building 77000
Total Assessed Value 77000
Estimated Market Value 740,000
Is there no land value associated with these tax parcels because they are owned as condominiums? Would my mother then be correct to depreciate the entire $370,000 (50% x $740,000) going forward from the date of my father's death?