How to count stepped up basic cost of rental property after spouse deceased? How to code "mass out of service or retired property prior dod of spouse?

[mybesttaxservice1]

My client has four rental properties. I indicate one sample here. The other three would be the same

The taxpayer and spouse own the property together as joint tenancy in CA 

The cost of basic property was in service 2013  $100,000 and prior depreciation $80,000 before spouse's death in 2022

2022 spouse passed away. The taxpayer appraisal the property DOD (or alternate value  in 6 months) $300,000

Q1: How correctly to count the step up basic cost of the property: her part $50000 ($100000/2 still remain the same) + spouse part (she inherited $300000/2)  $150000=$200000

Or it is automatic to step up $300000 on 2022

Q2:

Per my understand, prior depreciation before spouse's death is NOT relevant any more?  How to code "mass out of service or retired property" related to prior DOD of spouse OR  just delete that asset prior DOD in Proseries Professional and just  input the new asset on DOD 

Q3. When the surviving spouse  sells the property, we dont have to worry about prior depreciation prior dod of spouse any more (before 2022). Am I correct ?

Any advice would be appreciated, specially in tax seasoning 

[jeffmcpa2010 · Accepted solution]

Answers will probably vary depending on whether you are in a community property state, I am in comm. prop., and surviving spouse starts over at 300K.

I usually enter the date of death as sale date on old asset with no price to stop depreciation and

then add a new asset with DOD as acquisition date.

[TaxGuyBill]

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@mybesttaxservice1 wrote:

The taxpayer and spouse own the property together as joint tenancy in CA 

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Okay, it is a Community Property State, so it completely resets and the prior depreciation completely disappears.

As Jeff said, on the existing/old asset enter the Date of Death as the "disposition" date and leave the sale price BLANK.

Then create a new asset, enter the FMV on the Date of Death, and start depreciating it beginning on the Date of Death.

[abctax55]

Don't forget to allocate that stepped up basis between improvements & land.

I would use the same ratios as previously used.

[mybesttaxservice1]

Dear Jeffmcpa2010

I appreciate this .

That meant in community property state like CA, we use $300000. Some other tax expert advised to keep track half of tax payer basic and depreciation as normal and stepped up half cost basic FMV on DOB part of deceased spouse. LOL

Can you please tell me a little more detail how to enter the date of death as sale date on old asset with no price to stop depreciation? Did you enter on sche E /dispose property /sale price $0/(must purchase price also, right?)?

Again thank you for your time 

[mybesttaxservice1]

Oh I believe both tax experts here TaxGuy Bill and Jeffmcpa

I appreciate both of you to help me 

We are lucky to have both you here !

[BobKamman]

But you can also depreciate it for the months in 2022 that the spouse was alive, right?  

[mybesttaxservice1]

Dear abctax55 and BobKamman

Thank you both shared time and advised me

Yes I should depreciate portion of year on old asset until dod (Sep 2022) and portion new asset on dod (Sept 2022)  and so on 

The hard part is not know how to code "retired old asset " and stop depreciation on old asset LOL. 

I am thinking because of option 6 month alternate FMV  value. If we can delay new asset until Jan  01 2023 for simplication. And stop prior dod depreciation for the beginning next year 2023. 

Any suggestion? Thanks in advanced 

[BobKamman]

I'm not sure you can use alternate valuation date for joint tenancy property that immediately becomes the property of the survivor.  Isn't date of death then the date of distribution? 

"In the case of property distributed, sold, exchanged, or otherwise disposed of, within 6 months after the decedent’s death such property shall be valued as of the date of distribution, sale, exchange, or other disposition."

But why would you want to cheat your client out of higher depreciation deductions for 1/3 of the year?  Just because it's the lazy thing to do?

[mybesttaxservice1]

I appreciate you. It works as input "no sale price". Made my job easyLOL

Thank you Jeff

[mybesttaxservice1]

Dear BobKamman

Thank you for sharing info 

I myself thought it is choice of choose DOD or alternate FMV in 6 months 

Since normally taxpayers can appraisal the property later (not in dod )

Again, thank you