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bicichica
Returning Member

Where is adjusted cost basis of inherited rental property entered on the TT premier 2018 form?

 
5 Replies
Critter
Level 15

Where is adjusted cost basis of inherited rental property entered on the TT premier 2018 form?

As you complete the Rental section you add the house as an asset ... follow the interview screens.
Carl
Level 15

Where is adjusted cost basis of inherited rental property entered on the TT premier 2018 form?

Everything concerning rental property with no exceptions is entered in the Rental & Royalty Income (SCH E) section of the program. All assets, to include the actual rental property itself, are dealt with in the Assets/Depreciation section. Assuming you inherited the property in 2018 and this is your first deal dealing with rental property, I've included additional information below. When dealing with rental property, absolute perfection in the first year is not an option - it's a must. Even the tiniest of mistakes will get exponentially bigger over time. Then when you catch the error years down the road the cost of fixing it will be $high$. So if you have questions, please ask.

Since you inherited the property, the cost basis of the property is it's FMV on the date the person you inherited it from passed, and not the date your name was put on the deed.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence before, then this date is the day AFTER  you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.


bicichica
Returning Member

Where is adjusted cost basis of inherited rental property entered on the TT premier 2018 form?

On TT 2018, Does depreciation reported in previous years also change when new cost basis due to step up from inheritance? Or do you enter deprecs as if it were year 1?
Critter
Level 15

Where is adjusted cost basis of inherited rental property entered on the TT premier 2018 form?

You get the stepped up basis to FMV as of DOD  and it is year 1 for you.
Carl
Level 15

Where is adjusted cost basis of inherited rental property entered on the TT premier 2018 form?

If you inherited the property in 2018, there is no prior year's depreciation. Your cost basis is the FMV on the date the original owner passed. All depreciation taken by the previous owner just "evaporates" and goes away into thin air. Depreciation starts on your (I stress "YOUR") in -service date. That date is the earliest date of:
 - The date you started collecting the rent, if a renter was already in the property. This date can not be before your name was placed on the deed. All rental income received prior to your name being on the deed would have been paid to the estate of the deceased person you inherited it from.
 - The date you put the "FOR RENT" sign in the front yard, if there was no renter in the property at the time your name was placed on the deed. Depreciation starts on the first day a renter "could" have moved in. Doesn't matter if it took you 3 months to actually get it rented out either.
So your first year of deprecation will be 2018 and it will be pro-rated based on what month the property was "in service" under your name. Depreciation is based on the lesser of:
1. What you paid for the property
2. The FMV of the property at the time the property was placed in service.
Now since you inherited the property, you automatically get a "step-up" in the cost basis. So for you depreciation will be based on the lesser of:
1. The FMV of the property on the date the person you inherited it from passed away.
2. The FMV of the property on the date the property was placed "in service".
So in your case, the lesser amount will be the FMV of the property on the date the person you inherited it from, passed away. The property will be depreciated over 27.5 years with 2018 being your first year of depreciation.
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