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Death of Spouse - Rental Property


Yardley CPA

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MFJ, wife passed away in early 2016.  Return is on extension and I'll be working on it this weekend.  They owned two rental properties and I know this forum has provided information on having the ability to extend the depreciation of the rentals when one spouse passes.  A few questions:

  • If both rental properties are in the midst of their depreciation, can I simply start depreciating them again, over 27.5 years?
  • Is the date of death the new date for when the rental was placed in service?
  • Is the basis the fair market value of the rentals at the spouses date of death?
  • If one of the rentals has been fully depreciated prior to the death, I assume it can be depreciated again following the same rules for the questions above?
  • Is there anything I'm missing or should be looking out for?

Hope everyone enjoys the fall season!  The new tax year will be here before you know it.  :P

 

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Yardley, this is a real PIA to calculate, so charge accordingly.  You have to delete all the assets and enter his back in, 1/2 original basis, l/2 depreciation already taken, same acquisition date.  For her basis, use FMV at date of death, and start depreciation all over again.  Be careful though with any improvements that have been done over the years..  Husband gets half of those and continues depreciating as usual.  For the wife's share, these additions are now included in the date of death value, so you don't include her half at all.  With appliances and carpeting, the amount of write off is usually minimal so I  just continue depreciating as usual or delete them altogether.  I'll go back and read that thread to see what others do, but this is the practice I've adopted.

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Thank you for chiming in, JKL, Lion and Sara.  I've never had this situation in the past and appreciate all your comments.  Am I able to simply delete the current rental assets?  Won't that throw up any flags at all?  I know I'll be input them again, with new amounts based on the husband/wife basis...but simply deleting the current rental assets is the way to go? 

I assume I add the husbands 1/2 and the wife's FMV At Date of Death together and depreciate the rental as one property?  Assuming this is correct, is the combined amount depreciated using the date of death? 

Thank you again for all the input

 

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3 hours ago, Yardley CPA said:

Thank you for chiming in, JKL, Lion and Sara.  I've never had this situation in the past and appreciate all your comments.  Am I able to simply delete the current rental assets?  Won't that throw up any flags at all?  I know I'll be input them again, with new amounts based on the husband/wife basis...but simply deleting the current rental assets is the way to go? 

I assume I add the husbands 1/2 and the wife's FMV At Date of Death together and depreciate the rental as one property?  Assuming this is correct, is the combined amount depreciated using the date of death? 

Thank you again for all the input

 

This was covered in the other linked topic too.

Below is how to handle the assets, and please DON"T added the old and new basis together and start over.

You have to allow the program to calculation the depreciation through the DOD and then take it out of service. Then divide the cost and accumulated depreciation in half to arrive at the husband's original share of cost and a/d to be reentered because that will continue on at half value of the original cost and half the a/d already taken. THEN, also enter one-half of the "stepped" FMV that was inherited from the spouse as the basis without any accum depreciation to start, use the DOD as the starting date because depreciation starts over on the portion that husband inheritied.  

In other words, for this year the depreciation schedule will have the original depreciable assets through DOD AND 2 components for the time after DOD on the depreciation schedule for each asset that was owned. 

As an example, let's assume a house with a cost of $160,  a/d at BOY of $55, current deprec of $1 calc'd through DOD, a/d at DOD of $56, and a FMV of $350.

Your depreciation schedule will show these lines:

  • House, cost $160, a/d BOY $55, current deprec $1 (allow system to calc the partial year deprec), a/d at DOD $56 - out of service at DOD (or disposed with no gain, however ATX handles that)
  • House (for H's orig. share), USE ORIG DATE IN SERVICE, cost $80, a/d (at DOD) $28, current depreciation calculated for portion of year after DOD and you will have to override this to report the proper partial year amount
  • House (for stepped up inherited portion), use DOD as date in service, basis $175, a/d -0-, allow system to calc depreciation for current year that will be from DOD through year-end

IF he happens to sell the house within one year, you will have to override that gain to tell the system that the gain on the stepped up portion is also long-term because inherited assets get long-term treatment, but after one year, that won't be an issue any more.

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