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How is "unused" depreciation for improvements handled, on real property at time of death?

Imagine my uncle purchased residential rental property for $10,000 in 1950. In 2005 he added an enclosed porch to the property for $9,000 and began depreciating the cost of the improvement over 27.5 years ($327/year). Then he died in the year 2019 with the FMV of the rental at $150,000.

Is anything special done with the unused depreciation on the porch improvement?

Does tax planning typically consider the age of the owner (for example here it may have been better to expense the improvement, or try to categorize it as 15 year property).

Now imagine if:

The porch was destroyed in 2015 due to a windstorm. The demolition was expensed on the 2015 return, and the porch was not rebuilt.

https://taxmap.irs.gov/taxmap/pubs/p544-016.htm#TXMP50d9fd2e

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    Maybe I am missing something. What portion is unused? the 27.5 years starst in 1980, and he dies 39 years later, The depreciated value of the property and the porch are both zero. Even when the porch was destroyed in 2015 it was already zero.
    – mhoran_psprep
    Apr 4, 2019 at 10:05
  • Sorry, using theoretical numbers got the dates wrong. The idea was the porch was not fully depreciated at his death. In the case of the porch destroyed, of course the value went to 0 at the time it was destroyed, and the depreciation taken in that tax year.
    – Bryce
    Apr 9, 2019 at 5:42

1 Answer 1

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Any time someone dies before owning a rental for 27.5+ years, there's 'unused' depreciation. Nothing happens. A long-life improvement (say, a new roof) is no different.

The beneficiary inherits the rental at a stepped up basis. If sold within 6 months, there is no capital gain. More than 6 months, and if values have appreciated during that time, a potential small gain.

Note, if the beneficiary keeps the property as a rental, they get to depreciate all over again, given the basis resets.

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  • The question was not for the base home, but for the unused depreciation on improvements.
    – Bryce
    Apr 9, 2019 at 5:39
  • I updated my answer.
    – JTP - Apologise to Monica ♦
    Apr 9, 2019 at 10:44

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