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Old 02-17-2015, 03:09 AM
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Inherited rental’s tax situation

At uncle's death in 2009 , his home was put into a testamentary trust for mom's benefit. From 2010-2014 home became a rental property with some improvements, took depreciation on 1041 tax returns..
End of 2014: Trust terminates with death of mom late 2014. Property to be distributed per uncle's will to brothers and I. We will soon transfer into LLC and continue rental activities.

1. I assume basis is from when property originally placed into trust ( uncle's death)?

2. Preparing trust final return in Turbo Tax 1041:
Is asset "disposed" as in a $0 sale...and its treated as non-taxable event as in distribution of trust principle?
what happens to depreciation schedule, is there recapture? Or is depreciation schedule continued?

Any help appreciated. Thanks, brian



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Old 02-17-2015, 10:50 PM
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1. I assume basis is from when property originally placed into trust ( uncle's death)?========>>>>>>>>>correct;fmv at the date of your uncle’s death

2. Preparing trust final return in Turbo Tax 1041:
Is asset "disposed" as in a $0 sale...and its treated as non-taxable event as in distribution of trust principle?========>>>>>>>>I think so ; not sale yet
what happens to depreciation schedule, is there recapture? Or is depreciation schedule continued?=====>>>>>>>>>> Yes.A special 25% tax rate applies to real pty gains attributable to depre previously taken and not already recaptured under sec1250 rule. the unrecaptured depre is subject to sec 1250 , I mean. subject to 25% rate rule. So, any remaining gain attributable to unrecap depre previously taken, including S/L depre is taxed at 25% rather than the LTCG rate of 15%. When your tax bracket is only 10or 15%, the depre recap will be taxed at 10 or 15% to the extent of the remaining amount in the 10 or 15% brackets and then 25% The tax basis may be reduced for any depreciation claimed on the rental schedule after the death. The accumulated depreciation prior to the decedent's death is irrelevant. Once the property has been inherited, the depreciation schedule would begin based on the new fair market value



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