Capital Gain Tax on Inherited Rental Property

Forum|Forum|2 years ago
January 19, 2024
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Husband and wife own a rental in AZ (but they are CA residence) and they have been renting it for years, therefore the property has been depreciated. If wife passes away, is it true that when the husband inherits that rental property, it will be valued by the market price? For example: if the property was bought for $100k, and when the wife passes away, the net book value of the property is $50k, but the market value is $200k, thus if the husband wants to sell that property, he does not need to pay for the capital gain tax of $150k.

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Best answer by Anonymous_

@Galleria_Joe wrote:

Husband and wife own a rental in AZ (but they are CA residence) and they have been renting it for years, therefore the property has been depreciated. If wife passes away..........

On the death of a first spouse, community property may be written up to its full fair market value.

See https://www.cpajournal.com/2017/08/18/greatest-hits-community-property-step-basis/

Anonymous_Answer

Employee

@Galleria_Joe wrote:

Husband and wife own a rental in AZ (but they are CA residence) and they have been renting it for years, therefore the property has been depreciated. If wife passes away..........

On the death of a first spouse, community property may be written up to its full fair market value.

See https://www.cpajournal.com/2017/08/18/greatest-hits-community-property-step-basis/

Galleria_JoeAuthor

Thank you, however will the husband need to consider the depreciation recapture on the rental when he sells it?

Anonymous_

Employee

Depreciation deductions that were accumulated during the period prior to the passing of the wife will effectively disappear and depreciation will begin with a new recovery period and basis.