How is depreciation and cost basis handled on rental property upon death of a spouse (N. Carolina)? Do I delete entry in TT and add new cost basis based on 50% of FMV?

Forum|Forum|6 years ago
March 31, 2020
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Best answer by Anonymous_

@jed_and_brenda

The 50% (one-half) you acquired from your spouse is stepped up to $100,000 (FMV on the date of death). If 75% is allocated to the building, then the basis for depreciation of that one-half is $75,000.

Further, the depreciation deductions that were taken in prior years, for the one-half acquired from your spouse at death, are wiped out (i.e., depreciation starts again at the new basis for depreciation - $75,000).

The basis for your 50% (one-half) remains the same; $40,000 less depreciation allowed.

AmyC

Employee

Yes, you can re-enter the property with the stepped up basis, if the property was jointly owned. Tenants in common is a different scenario than JTROS. There are a couple ways to do that. See link below for entry.

You will want to make sure you know all prior information before you hit delete. It should be in your original return.

Links to help:

Pub 551 Inherited Property Basis,

How do I edit the basis of rental property in TurboTax to reflect the stepped up basis of the 50% of jointly owned property inherited from my spouse?

I am very sorry for your loss.

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jed_and_brendaAuthor

Thanks for your response! Taking point 2 of a suggested answer "Create another new "asset" using 50% of the Fair Market Value on the date of death, and use the date of death as the "placed in service date".". Just to confirm - rental house bought in 1985 for 80K. Building value of $60K has already been fully depreciated. On date of death, FMV was $200K. So, do I simply have the new asset valued at $100K and then start depreciation again from there over 27.5 yrs?

AmeliesUncle

Yes .. *IF* the FMV of the BUILDING was $200,000 on the date of death. If the $200,000 includes land, you need to take that into account.

Carl11_2

Employee

Do I delete entry in TT and add new cost basis based on 50% of FMV?

Sorry, but the way @AmyC worded her initial response is misleading.

Under no circumstances will you delete the original asset. Since the property was jointly owned by a married couple that filed joint in the past, the original asset remains unchanged.

Since N.C. is not a community property state, your step-up in basis is 50% of the FMV on the date of your spouse's passing.

rental house bought in 1985 for 80K. Building value of $60K has already been fully depreciated. On date of death, FMV was $200K.

So that's an increase of $120K (200K minus 80K) and your spouse's 50% of that is $60K. So lets work the math for the correct depreciation amount.

Of the orignal figures at purchase, 75% ($60K) was allocated to the structure and that's the amount that was depreciated.

Next, 75% of $60K (Your spouse's 50% of the basis increase) is $45K

So you simply enter a new asset with a COST of $60K and COST OF LAND is $15K.

The difference of $45K is what gets depreciated over the next 27.5 years.

Under no circumstances and with no exceptions will you delete anything from the Assets/Depreication section. If you do, then all the depreciation already taken is lost and gone forever, and future depreciation will be double-dipping. (which is fraudulent) If you do delete it, then you will find yourself in a never-ending nightmare tax-wise when one of two things happens in your future.

- You sell the property

- You pass away. (This has the potential to create a nightmare for your heirs, though not common)

Anonymous_

Employee

It is not 50% of the basis increase, it is 50% of the fair market value.

The deceased spouse's basis is stepped up to 50% of the fair market value as of the date of death. In this instance, that would be $100,000. If 75% were allocated to the building, the new basis for depreciation (for the one-half acquired from the decedent) would be $75,000.