Question

Dad and I owned jointly rental property, Dad passwed away, how to handle

Forum|Forum|5 years ago
June 6, 2021
4 replies
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My dad and I jointly owned a rental property for 12 years and he was managing daily rental activities (rent collection, mortgage and property tax payment etc). He also was showing rental expenses in his 1040 schedule E. He passed away in Nov 2020 and since then I am managing the rental property and paying mortgage and property taxes. How should I report in my 2021 tax year (due in April 2022)? I have no record of depreciation he had taken in last few years. All I have is his 2020 tax year 1040 and the current mortgage balance. I also know how much it was paid for it 12 years. Should I use original value paid and take that value for depreciation - for 15 years ( 27 less 12 ) or for next 27 years? Do I need to find out current property value? He was showing loss in rental property expenses. Can I carry forward the losses in my 1040 schedule E? or I have to start from clean ? Thank you in advance

Not A Product Question

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Bartlett37Author

Forgot to mention, rental property is in Illinois, where we file taxes every year

M-MTax

My condolences on the passing of your father. You're going to have to deal with the depreciation issue and new basis issue and you should get a tax pro for this.

If depreciation deductions were not taken each year and it has been a number of years since they were taken....if at all....then you'll need to file a form 3115 to catch up with the depreciation deductions. You'll need a tax pro for that.

It looks like you got "inherited" your father's half either by law or by descent so that half of your basis is stepped up to its FMV on the date of your father's death and all previous depreciation disappears. BUT that is for the HALF you "inherited" from your father......the basis for your original half is still your cost basis.

Get a tax pro to help you with this so you don't make mistakes that would be hard and costly to correct.

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Bartlett37Author

Thanks.

Dad was taking depreciation every year for last 12 years. I meant to say, I don't have details about any appliances depreciation. For the stepped up basis, am I getting this right?

If original purchase value was $140,000 12 years ago, FMV in Nov 2020 (at the time of dad's death) was 120,000 (unfortunately, market has still not recovered yet ). My stepped up to FMV will be $60,000 and my original half $70,000, makes 130,000 value for the cost basis for depreciation? and I should use this value for 27.5 years depreciation?

M-MTax

My stepped up to FMV will be $60,000 and my original half $70,000, makes 130,000 value for the cost basis for depreciation? and I should use this value for 27.5 years depreciation?

No.....you continue to depreciate YOUR original half over its remaining life BUT the half you "inherited" from your father starts over in terms of depreciation. So, your original half does NOT change but your NEW half starts over at the new basis and new recovery period of 27.5 years. Your total basis is now "split" into two halves each with a different basis and recovery period.

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Mike9241

was ownership with right of survivorship or as tenants in common? also if you live in a community property state and he was married that could affect reporting and who gets his share. you really need to talk to a lawyer to make sure everything is handled properly.

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Bartlett37Author

Since Mom passed away 15+ years ago (& dad never re-married) and deed is as joint tenants, I think I am ok from who gets share. Thanks for advise.

Carl11_2

Employee

After reading this thread, my impression is that your father was reporting this rental property on his tax return for the last 12 years, and you were not. If that's the case, you need to seek professional help. Especially since the state also taxes personal income. Depending on the history here, you may have a small mess to clean up, or a really big one. So seek professional help for the 2020 tax return.

Then, if you want to return to TurboTax for your 2021 tax return make absolutely certain and insist that the tax pro provides you a printout of the 2020 tax return and that it includes absolutely all calculation forms and worksheets that are not normally filed with a tax return. You will most definitely need that information upon returning to the TurboTax program for your 2021 tax return.