Figuring the Step-Up in Basis

Technical topics regarding tax preparation.
#1
Preppie  
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Married couple owns a property as JTIE, and places it in service as a rental in 2010.
She leaves him in 2011, but they never divorce, have a property settlement, or change the title.
He files MFS claiming all rental property income & expenses 2011-2017. (We don't know how (or if) she filed.)
She dies in 2018.
Not a community property state.
Does he get a full step up in basis on her half, including the depreciation?
 

#2
Nilodop  
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I don't know the acronym JTIE, but I'll take a leap of faith and assume you mean either Joint Tenancy with Right of Survivorship or Tenancy by the Entirety.

As I am sure you know, the usual answer in inheritance from a spouse is that there is a step-up for the one half that was includible in the deceased spouse's estate. And yes, assuming you mean by "... including the depreciation.", that there is no longer any unrecaptured section 1250 gain as to the inherited half, yes, that is the case.

But you have posed a screwy set of facts. Did W ever actually have beneficial ownership of half of the property, and, if so, did she still have it when she died? Or did H "steal" her half of the property from W when they split? Or did W just leave and, effectively, abandon/give that half to H? Does section 1041 cause the transfer of W's half at the time she split to be treated as a gift?

Unless there are facts to show a particular scenario, I think it would be perfectly reasonable to claim the step-up for half. But I'd also be prepared for a challenge along the lines that H (beneficially) owned 100% all along, so no step-up applies.

And not that it's dispositive or even necessarily relevant, but what name or names were at the top of the Schedule E each year?
 

#3
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Gray, TN
Jan 1 2018

Assume the property was sold. Legally, how would the proceeds have been distributed? That should lead you to your answer.
 

#4
Doug M  
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Was this property their residence? Your wording makes me think it was property converted to rental use.
 

#5
AnitaL  
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Wilmington, NC
I don't see how he could get a step-up in basis when he claimed 100% of the income & expenses for the properties for all of those years. But, I've been wrong before.
 

#6
Preppie  
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Virginia
Doug M wrote:Was this property their residence? Your wording makes me think it was property converted to rental use.

Residence from 1992 - 2010.
Rental 2010 - present
 

#7
Doug M  
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When people don't split rental income based upon ownership, I always say to follow the money as to who should pay tax on the profit, or burden the loss. I have never felt that ownership is dictated by profit and loss sharing ratios.

I'm with Len, 50% step. He acquired this property via death of the decedent.
 


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