Depreciate a step-up over the remainder of the original recovery period? Can you depreciate a step-up over the remainder of the original recovery period?
George and Martha are joint owners of 39-year depreciable property purchased for $39,000. Every year they depreciate $1000. After 35 years, the accumulated depreciation is $35,000, and so their adjusted basis is down to $4,000. George dies and Martha inherits his half of the property. The FMV at this time is $784,000. As the full step-up in basis would be $784,000 - $4,000 = $780,000, Martha's step-up is half of this, $390,000. On which of these schedules can depreciation legitimately run?
Schedule 1: Add Step-Up as a Separate Item to Depreciate in Original Recovery Period
George & Martha's original basis continues @ $1,000 / yr for 4 more years.
Step-up depreciates @ $390,000 step-up / 4 years remaining = $97,500 / yr for 4 more years.
Schedule: $98,500 / yr ($1,000 + $97,500) for 4 years
Schedule 2: Add Step-Up as a Separate Item to Depreciate in New Recovery Period
George & Martha's original basis continues @ $1,000 / yr for 4 more years.
Step-up depreciates @ $390,000 step-up / 39 years = $10,000 / yr for 39 more years.
Schedule: $1,000 + $10,000 = $11,000 / yr for 4 years, then $10,000 for 35 years
Schedule 3: Reset Both Basis and Accumulated Depreciation in Inherited Half
Martha's half's original basis continues @ $500 / yr for 4 more years.
Inherited half ( $784,000 / 2 = $392,000) depreciates at $392,000 / 39 yr = $10,051.28 / year.
Schedule: $10,551.28 / yr ($500 + $10,051.28) for 4 years, then $10,051.28 / yr for 35 years.
In all cases, by the time the depreciation schedule runs out, a total of $394,000 will have been depreciated since George's death, yet the schedules achieve this at different rates. Are all of these schedules legitimate options?
Last edited by paxsonstore : 02-07-2015 at 02:31 PM.
Reason: clarify issue
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