“This seems like a great "loophole" to make depreciation recapture just disappear if you want to transfer assets to your beneficiaries and not have your estate or the beneficiaries have to pay any tax on that depreciation that you were able to deduct on your return all those years.”-----> When a piece of property is inherited, it starts fresh with a new basis and new depreciation as said prerviously. The prior depreciation is simply gone with no recapture. When a taxpayer dies, no gain is reported on depreciable real property transferred to his or her estate or beneficiary. However, if the decedent disposed of the property while alive and, because of his or her method of accounting or for any other reason, the gain from the disposition is reportable by the estate or beneficiary, it must be reported in the same way the decedent would have had to report it if he or she were still alive. Ordinary income due to depreciation must be reported on a transfer from an executor, administrator, or trustee to an heir, beneficiary, or other individual if the transfer is a sale or exchange on which gain is realized.For example, you owned depreciable rental property that, upon your death, was inherited by your son. No ordinary income from depreciation is reportable on the transfer, even though the value used for estate tax purposes is more than the adjusted basis of the property to you when you died. However, if you sold the property before ypour death and realized a gain and if, because of your method of accounting, the proceeds from the sale are income in respect of a decedent reportable by your son, he must report ordinary income from depreciation.