Inherited Rental Property distributed through a irrevocable trust

Forum|Forum|1 year ago
March 26, 2025
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My relative had all their rental property in a revocable trust. Upon passing the trust became irrevocable. It took three months to wind up the relative's estate and file the F1041 tax return for the trust and distribute the property. The property was distributed to me and I received a K-1 form listing the net income and expense for the properties while in the trust.

I am guessing that depreciation on the properties would have continued and remained on the same basis as if my relative had not passed while the properties were in the irrevocable trust. Upon the dissolution of the trust and the distribution of the property, I would step up the basis in the properties and my depreciation would begin on the date the trust was dissolved.

Is my assumption correct?

Thank you, RT

TurboTax Home & Biz Windows

Best answer by RobertB4444

Yes, your assumption is exactly right.

@TaxMan81

RobertB4444Answer

Yes, your assumption is exactly right.

@TaxMan81

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TaxMan81Author

Thank you so very much I have been struggling to find the answer!

M-MTax

@TaxMan81

I'm not sure if I read your initial post incorrectly, but so it's clear, the basis of the property would typically receive the step up upon the passing of the decedent.

At that time, previous accumulated depreciation deductions would essentially disappear, the property would receive a step-up in basis, and the basis for depreciation (in the trust) would be that stepped-up basis.

When the property was distributed to you out of the trust, you would simply take the trust's adjusted basis.