Sale of what was jointly inherited property

[JYA]

My wife jointly inherited some real estate property valued at $100,000. We bought out her siblings share for $50,000. We rented the place out for a few years, took depreciation on the asset based on the $100,000 valuation and now have sold it for $111,450. I understand that I will have to pay taxes on the depreciated amounts. Furthermore, I have been carrying over passive losses which will offset the minimal gains. I am trying to come up with the total capital gains(loss) on the property. However, what is the cost basis for the property? If I use the original value of the property it seems I'll will be paying tax on her inheritance. And, how will our actual investment of $50,000 get accounted for?

[DavidS127]

You original cost basis is the fair market value of the inherited property on the date the relative passed, plus the amount you paid for the share you purchased.  So, using your figures it is the $50K your wife inherited, plus the $50K you paid for the other share, for a total of $100K.  To that you would add any improvements to the property since you acquired it. 

As you noted, any depreciation "allowed or allowable" on the property is deducted in the process of calculating the gain on the sale, and the "recaptured" depreciation amount is taxed at ordinary income rates instead of capital gains rates.