Assume there is a property owned by a couple with one son. When one parent dies, s/he bequeaths one half interest in the property to the son and half to the spouse.
Two years later the property is placed in service as a rental and both surviving parent and son start taking depreciation on their tax returns.
The other spouse dies 10 years later, at which point the market value has increased dramatically. The son inherits the remaining half.
My question is how to calculate the son's basis in the property. To make things a little easier, let's use some concrete numbers:
Entire Son's Property Share -------- -------- FMV when first parent dies $400,000 $200,000 FMV when second parent dies $2,000,000 Son's accumulated depreciation $ 20,000
Based on my research, the son's basis is
$200,000 - $20,000 + $1,000,000 = $1,180,000
I.e. the cost basis of his half at inheritance, minus accumulated depreciation, plus the stepped up basis of the second parent's half at death.
Is this correct?