On February 11, 2012, Bill inherits his father’s summer home. The house has a fair market value of $496,000 at the date of his father’s death.

[patelru021714]

His parents had purchased the house in 1974 for $127,000 and made $59,000 worth of capital improvements to it. Twenty percent of the total value of the property is attributable to the land. Because Bill and Joyce ultimately would like to use the property as a vacation home, they decide to rent it out. Bill actively participates in the management of the property. The property is first advertised for rent on March 1, 2012, but is not rented until April 15, 2012. Bill provides the following income and expense information for the Lake Tahoe rental property:

Rent $18,000 

Repairs 4,720

Management fee 2,750

Property taxes 9,375

Insurance 1,900

In addition, Bill buys a new stove for $1,240 and a new refrigerator for $970 on March 20, 2012.  

What is the depreciation value and where does these amount goes in forms and schedule

[Coleen3 · Accepted solution]

The basis for inherited property is generally the Fair Market Value on the date of death. Since the basis for converted (personal to business) is the lower of Adjusted Basis or FMV, your basis is still FMV because in your case the AB and FMV are the same if the conversion was immediate. 

Rental property income and expenses are reported on Schedule E Supplemental Income and Loss and Depreciation is reported on Form 4562. These forms are available in the Premier Edition of Turbotax. You will need the Desktop version as the online is not available for a prior year.

The stove and refrigerator are 5 year property and depreciation is also reported on Form 4562.