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Old 08-11-2016, 06:46 PM
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does investment property bought prior to marraige get a step up in basis when converting from sole ownership to community property between spouses

1st question: Purchased investment rental property in 2000 in California as a single person and have taken depreciation every year. I?d like to know if the property gets a step up in its basis value, and the previous depreciation already taken does not need to be recaptured if I get married this year and make the property community property with my spouse via a grant deed and pre-neputial agreement.

2nd question;
I know that community property gets a step up in basis if a spouse dies, but in the example above, would it only apply if I died, as I was the original owner, or would the property get a step up in basis regardless if either I died or my spouse died?



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Old 08-12-2016, 07:27 AM
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1st question: Purchased investment rental property in 2000 in California as a single person and have taken depreciation every year. I?d like to know if the property gets a step up in its basis value, and the previous depreciation already taken does not need to be recaptured if I get married this year and make the property community property with my spouse via a grant deed and pre-neputial agreement. ========>>I do not think so. The rental pty does not get step up basis; Tax law permits certain inherited property to receive a new tax basis equal to the fair market value of the property as of the date of death. Thus, property that has appreciated in value during a decedent?s lifetime receives a ?step up? in tax basis upon the decedent?s death if sufficient ownership or control is retained to result in the property being includible in the decedent?s estate for estate tax purposes. This means the recipient of the property gets a new tax basis equal to the fair market value of the property as of the date of the decedent?s death. So, a rental real property and other depreciable assets have a new tax basis for depreciation deductions. Once you sell the rental property, then, you are subject to a 25 percent tax aka sec 1250 recapture tax(aslongas your tax bracket is 25% or higher) on all depreciation you have claimed ;once you take losses on the sale of the rental home then no need to recapture the sec 1250 depreciation.



2nd question;
I know that community property gets a step up in basis if a spouse dies, but in the example above, would it only apply if I died, as I was the original owner, or would the property get a step up in basis regardless if either I died or my spouse died?====>In general correct; but it depends .however, If the fair market value of he rental property has decreased from the time the decedent purchased the property to the time of death, then the tax basis will decrease to the date of death value -, so,there will be a step down instead of a step up



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