This is likely a simpler situation than I am stating, just unfamiliar territory for me.Husband individually owned rental house purchased in 2004 - Purchase price $50,000, (40,000 house, 10,000 land) has deprceciated about 27,000 since putting it in service.Husband and wife married about 10 years ago and file a joint return. (non community property state)Husband died in 2024 intestate, house is currently in probate but will likely transfer to wife in 2025 at conclusion of probate.House is no longer being rented as of end of 2024.Wife intends to sell house, value at time of death and currently is approximately $100,000. Assume that will be sale price.I understand that wife would get stepped up basis as of date of death, but not sure how to record property no longer being rental property and also impact of any depreciation recapture, either at time of transfer to wife or at eventual sale.What happens to the accumulated depreciation that husband was deducting before death? Upvote1Downvote0Go to commentsShare

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joepmo

Question

Reporting Rental Property transfer to survivor spouse after death of owner spouse

Forum|Forum|1 year ago
February 26, 2025
2 replies
0 views

This is likely a simpler situation than I am stating, just unfamiliar territory for me.

Husband individually owned rental house purchased in 2004 - Purchase price $50,000, (40,000 house, 10,000 land) has deprceciated about 27,000 since putting it in service.
Husband and wife married about 10 years ago and file a joint return. (non community property state)
Husband died in 2024 intestate, house is currently in probate but will likely transfer to wife in 2025 at conclusion of probate.
House is no longer being rented as of end of 2024.
Wife intends to sell house, value at time of death and currently is approximately $100,000. Assume that will be sale price.
I understand that wife would get stepped up basis as of date of death, but not sure how to record property no longer being rental property and also impact of any depreciation recapture, either at time of transfer to wife or at eventual sale.
What happens to the accumulated depreciation that husband was deducting before death?

Upvote1Downvote0Go to commentsShare

PatriciaV

Employee

Since your spouse passed away in during the year, you can still file a married filing jointly tax return for that tax year. You do need to indicate in the Personal Info section that they passed away.

Under Rental Properties, work through the property profile and check the box for "I stopped using this property as a rental in 2024." Answer any follow up questions. Basically, you are reporting that the property was converted to personal use. Because there was no legal change in title, the property remains on the joint return as part of the estate.

The accumulated depreciation will become a factor when the property sells. Your stepped-up basis for the inheritance must be adjusted for the depreciation taken as a Rental Property when you report the sale to determine if you have a gain or loss.

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pk12_2

Employee

@joepmo , assuming that you are using Windows TurboTax Home & Business ( that is my go to and can do the most complicated returns ). I am looking at it as a sale / disposition in 2025 -- and therefore 2026 filing.

(a) Under business tab select Sale of business property. This will then ask for details about the property. 1.Provide the Basis as current stepped up value ( since this was not community / marital property it will step up to FMV at the time of the decedent )

2. Provide the accumulated depreciation -- get this from the depreciation document included in 2023 worksheet and include the amount for 2024.

3. Provide the sales proceeds --- from HUD-1 should be helpful . What you are looking for are the sales Proceeds = Sales Price LESS all allowable sales expenses ( e.g. any repairs etc. for a sale, real-estate commission, transfer tax, title insurance etc. etc. ).

4. TT will then , through the rest of the screens compute the total capital gain. Note that out of this gain, that portion due to accumulated depreciation is treated as ordinary gain and then the rest is given capital gain ( and therefore capital tax rate ).

Does this help ?

Is there more I can do for you ?

joepmoAuthor

The property will not be used as rental property after the husband's passing. Basically it was vacant and wife does not want to rent it out. just sell it. It was my impression that the accumulated depreciation prior to the husbands death basically went away. The wife does not inherit the accumulated depreciation.

pk12_2

Employee

@joepmo , the basis is stepped up ( at the estate level i.e. before distribution to the inheritor (s), all other characteristics remain intact . So no , you cannot ignore the "recapture".