Sale of idle rental property

Forum|Forum|3 years ago
March 20, 2023
2 replies
45 views

Husband and wife placed rental property into service in 2011 and stopped renting in 2018. Husband was too ill to deal with new renters and they decided to let it sit empty. Husband passed away in 2021 and rental house was sold by wife in 2022. They did not try to rent it but also did not use it personally. It was never their principal residence. Previous tax preparer stopped depreciation and recording expenses on sched e at the end of 2018. I have the old depreciation schedule and can come up with allowed, allowable depreciation. The surviving wife has an appraisal as of the date of death and I am stepping up her half of basis (non-community property state). With the increase in basis it will be a loss situation unless no loss allowed. So, would this be a regular sale of rental property with losses run through 4797? or Sale of investment property with capital loss limited to 3K? or Sale of 2nd home with no loss allowed? I keep going around and around on this one. Thanks.

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jeffmcpa2010

Level 10

I'm having a hard time with the math, (1/2 FMV) Plus (1/2 of original cost) minus (accumulated depreciation) Is less than current sale value ?

rbynaker

Level 13

I don't know the answer but I'm surprised there's a loss with a 1/2 step-up in basis.

Basis for loss would be:

50% of original cost basis
-50% of accumulated depreciation
+50% of FMV on date of death

Can you share rough numbers?

Edit: Got distracted in the middle of writing this and didn't see Jeff's post, but sounds like we're on the same page! The situation you describe is not impossible, just doesn't pass my sniff test.

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BilgeratAuthor

Level 3

Cheapo rental. They bought it at bankruptcy auction. Original cost $58,932, $20,000 allocated to land, depreciable basis $38,932 . Accumulated dep to end of 2018 was $10,441. Surviving wife will have half of these. The appraisal on the date of death is $148,270. Her half of that step-up value is $74,135. Her total basis is her original half $29,466 plus $74,135 half the FMV at DOD total of $103,601. Allocation to land in her original half is $10,000 and $25,206 in step up half. The surviving wife sold the rental for $75,000 in 2022.

rbynaker

Level 13

Thanks. Wow. I would want corroborating evidence of FMV. Appraisal at ~$150K and sale the next year for $75K sounds fishy.

I would likely go with capital loss on investment property. Sounds like it ceased to be a rental when they stopped depreciation.

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