Rental property stepped up basis

Forum|Forum|11 months ago
April 7, 2025
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My parents purchased their home in 1994. My dad passed in 2004. She converted the house to a rental property in 2024. What is her basis for depreciation? It's worth more now than when they acquired it, so is it what they paid for it in 1994 or 50% of what they paid for it in 1994 plus 50% of its value in 2004 (reflecting a stepped up basis as a result of my dad's death)?

DianeW777

Yes, the cost basis for your mother would be 50% of the original cost, purchase expenses and any capital improvements before the death of your dad. Next she would add, on the date of death, 50% of the fair market value (FMV). She is entitled to 50% of the stepped up basis in 2004. Any capital improvements made after 2004 would also be added to the cost.

Land is important as well. You can use the tax assessment from the county or city to arrive at the percentage of cost that applies to land. When you enter the rental asset, enter the entire cost of the rental house and then enter the land cost where indicated. TurboTax knows to reduce the entire cost by the portion that applies to land before depreciating. Land is always an appreciable asset and will have much better tax consequences at the time of sale in the future.