Rental Property inter-spousal transfer

[avacado]

In 2020 my spouse and I separated and filed separately.  We split the income, expenses, and depreciation on our rental property.  In 2021 we did an inter-spousal transfer of the rental property and as of 9/1/21, I have full ownership of the rental property.  By entering 67% ownership of the rental (since I owned the property for 2/3 of the year), I can see on ScheduleE that all of the expenses are getting calculated correctly, except the depreciation.  I don't see a way to manually enter the applicable depreciation, so I'm guessing I'll need to enter this rental inter-spousal transfer differently?  Thanks so much for any help.

[DianeW777 · Accepted solution]

The depreciation that was used by your wife will become depreciation used by you as well.  You should first take care of the asset you already had on your depreciation schedule before the inter-spousal transfer.

1. When you are going through the assets there is a screen asking for the date the asset was 'sold, retired, stolen, destroyed, disposed of, ...'.  Be sure you enter the date retired and the depreciation will be limited. Click Yes to Special Handling.  This will carry the partial year of depreciation to the business activity.
2. Add a new asset for the property using the full price of the property but placed in service on the inter-spousal transfer day of 9/1/2021.  This will provide the partial year of depreciation for the remainder of the year.
3. In 2022, you should change the date placed in service to the original date so that all prior depreciation begins to be accounted for from the original date placed in service forward.

This should handle everything with the correct depreciation for 2021. If you made the changes necessary for 2022, you will be good for all future years until you dispose of by sale of  the property.  Keep all of your records for 2021 (and 2020) so that you can reference back should you need to just for those tax years.