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Rental Property Transferred to Trust After Death

My mother owned a small commercial property with a triple net lease, so the only expense is depreciation.  She had a revocable living trust which became irrevocable when she passed away 5/1/23.  For 2023, the lessee paid the rent to her as an individual for Jan-Apr and to the trust for May-Dec, so I have one 1099-MISC for each.  We listed the property for sale in December, and it hasn't yet sold. 

 

My question is with regards to the depreciation for 2023.  It is only $965 for the whole year because the only building on the property is a small drive-thru ATM.  I'm guessing that I can't just override the depreciation amount in TT to reflect the Jan-Apr amount for the 1040 and then manually enter the May-Dec amount on the 1041, correct?  Do I have to complete the asset disposition section on the 1040 and use the remaining basis as the sales price, then set the asset up with that carryover basis?  Do I also carry over the remaining useful life to the trust so that depreciation continues at $965 per year?

 

Thank you for any insight you can provide.   

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Accepted Solutions

Rental Property Transferred to Trust After Death

sorry for your loss. for her, it's depreciation as usual for the portion of the year she owned it. in Turbotax you enter the date of death as the date sold but do not enter any proceeds so depreciation is prorated. She recognizes neither gain nor loss and the depreciation she took over her period of ownership disappears.  Upon her death, the property value is stepped up to fair market value(FMV). That is divided between the land and the depreciable portion.  So the trust from the date she died to the end of its tax year gets depreciation based on the FMV of the depreciable portion over 39 years.  A 1041 needs to be filed which is done with Turbotax business. Whether the trust pays tax on any of this and any other income or it's distributed to the trust beneficiaries is a matter of the Trust instrument and what state law allows.  

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Rental Property Transferred to Trust After Death

sorry for your loss. for her, it's depreciation as usual for the portion of the year she owned it. in Turbotax you enter the date of death as the date sold but do not enter any proceeds so depreciation is prorated. She recognizes neither gain nor loss and the depreciation she took over her period of ownership disappears.  Upon her death, the property value is stepped up to fair market value(FMV). That is divided between the land and the depreciable portion.  So the trust from the date she died to the end of its tax year gets depreciation based on the FMV of the depreciable portion over 39 years.  A 1041 needs to be filed which is done with Turbotax business. Whether the trust pays tax on any of this and any other income or it's distributed to the trust beneficiaries is a matter of the Trust instrument and what state law allows.  

Rental Property Transferred to Trust After Death

In the personal return ... do not enter it as sold ... instead indicate it was converted to personal use to stop the depreciation.  Doing it this was is easier and will get the same bottom line. 

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