Stepup on Basis: Sale of a Multi-Family property

[jerryadvisor53]

Client passed away in 2021. Multi Family property was being depreciated, and was sold shortly after.  Where (what form) and how do I report the step-up on basis on the sale? I can report it on form 4797, and this adjusted basis would take into account the gain that will be absorbed with the step-up.  I did see one discussion that said to adjust the basis to account for the step-up. I would then want to attach an explanation so as to notify the taxing authorities why the basis/depreciation about changed.

Or do you have another way to handle it? TIA

[jeffmcpa2010]

What form are you filing? (IE 1040, 1041 etc.)

[jerryadvisor53]

Form 1040. The property was being depreciated on Schedule E for his rental

[jeffmcpa2010]

Are you preparing his final return?

All activity on that ends as of the date of death.

[jerryadvisor53]

Correct, 2021 will be his final return

[jeffmcpa2010]

The step up basis does not happen until the Day after his final return ends - the date of his death.

There is no Step Up on his final return - That happens with the next return - 1041 for Estate, or 1040 for whoever the property went to if it went direct immediately (like with a Transfer on Death deed).

[jerryadvisor53]

Thank you for your feedback. So if the taxpayer died in 2021, the step up does not happen until the 2022 return?  What if the property was sold in 2021 - does is it reported if its not stepped up in 2021?  Wouldn't we have to report a gain?

[jerryadvisor53]

Or is the 1040 a short period return, say Jan 1 to March 4, etc and the 1041 starts March 5, 2021 to Dec 31, 2021?

[TaxGuyBill]

The 1040 reports income while the taxpayer was alive.

Income received after the taxpayer dies goes either on a 1041 Estate return or the tax returns of the people who inherited the property.  On those returns, there is no need to explain the Basis.  Just use the Stepped Up Basis.

[jeffmcpa2010]

Or is the 1040 a short period return, say Jan 1 to March 4, etc and the 1041 starts March 5, 2021 to Dec 31, 2021?

That is your answer. 

You start the 1041 year March 5. You can use the calendar year or you can go fiscal year until 2-28-22. 

[qbteachmt]

This: "On those returns, there is no need to explain the Basis. Just use the Stepped Up Basis."

Who sold the property? Was that the executor or the inheritor? I don't see where the date of sale is related to the date of death or to the inheritance.

[jerryadvisor53]

It was sold by the Administrator of the Estate

[jerryadvisor53]

Thanks for the reply.  So income is recognized, on form 1040, on the sale after the taxpayers death?  But it was sold by the Administrator. My issue is how to I "move the asset" to the estate to then show the sale with a stepped up basis?  At the same time, now show a profit on the individual return since it was not sold by the taxpayer but by the Administrator

[jeffmcpa2010]

No NOTHING AFTER DATE OF DEATH GOES ON THE 1040.

The sale is reported on 1041 of the estate. Basis is FMV at date of death. Any prior depreciation does not come in to play in any way.

You dont "Move the Asset to the Estate".

You enter a new asset in the Estate Schedule E. With the FMV as of date of death and begin depreciating it at that time, record all the rental activity between date of death and sale of property on schedule E and record the sale through the asset entry page.