Basis for rental house sold after one spouse dies.

[karteroko]

Rental home was bought in June 1999 for $135k. One spouse died in 2021 when the house was appraised for $515k. The home was sold on March 2022 for $520k. Just on those figures alone, what would be their basis? Thanks for any help.

[taxes96786]

1/2 of purchase price plus improvements during time owned, plus1/2 of FMV on date of death of spouse, plus difference in that full FMV and FMV on date of sale.

[JOFI · Accepted solution]

The last phrase in your response is confusing.

The stepped up basis (assuming no improvements were made at any time) should be $325,000 in this case.

[rbynaker]

Not enough information was provided to answer the question (and yet you somehow got two answers already).  The two big things that jump out as omitted:

1) Are you in a community property state?

2) What about depreciation allowed or allowable?

Rick

[Terry53029]

As @rbynaker said when a spouse dies it makes a difference if you are in a community property state.

There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 

[taxes96786]

Her basis is 1/2 of purchase price plus 1/2 of FMV on date spouse's death. Depreciation for the rental time only is for the residence, not the land, so that is not included in basis. Depreciation is a separate calculation done once current full basis is determined.

Is that clearer?

[BobKamman]

What's not clear is why you are ignoring the previous answers pointing out that we need to know whether this is a community-property state.  Just because you are out in the middle of the Pacific doesn't mean you can ignore 40% of the country.  

[karteroko]

Hi. It is a community property state. California. I will add or subtract any depreciation taken or improvements over the years.

[sjrcpa]

Don't. Full step up in community property state. Only Depreciation after death is counted.

[karteroko]

Thanks for that info.

[taxes96786]

The original post did not ask for that to be addressed....I answered what was asked.

[LeticiaC]

Appreciated the communication. To confirm, in California, when spouse dies is the property 100% stepped up based on the FMV of date of death?  Thank you.

[sjrcpa]

Yes if it is Community Property.

[BobKamman]

And if it's separate property, as long as the decedent was the owner.