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My wife and her estranged sister inherited a warehouse from

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their mothers estate in 2009...
My wife and her estranged sister inherited a warehouse from their mothers estate in 2009. The warehouse is rented and each receive 1/2 of the income from the company renting it and each pay 1/2 of the insurance and local taxes.

The warehouse is valued at 150,000 dollars.

For our 2009 taxes we showed the rent income received, the tax and insurance paid and the expenses all for my wife showing income and expense for her as a property manager.

Is this the way we should be doing this? Do we have to depreciate it even though it cost her nothing?
Submitted: 6 years ago.Category: Tax
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8/1/2011
Tax Professional: Stephen G., Sr Income Tax Expert replied 6 years ago
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
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Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

Well, you don't HAVE to depreciate it, BUT the way depreciation works, it is "Allowed or Allowable"

Stephen E. Grizey :

What that means is that even if you don't claim the depreciation, your income tax basis in the property is reduced by the depreciation you could have claimed anyway.

Stephen E. Grizey :

In other words it is a "lose - lose" situation if you don't claim the depreciation expense.

Stephen E. Grizey :

The depreciation in your situation would be based upon the value included in the gross estate.

Customer:

Do I base it on the value of the property ie $150,00 and how long do I use to depreciate it?

Stephen E. Grizey :

Of course, you would have to reduce that number by an allocation to the land (which is not depreciable) & then by your wife's interest in the property.

Stephen E. Grizey :

Generally the IRS will look to the real estate tax assessment to determine an appropriate allocation between land & building.

Customer:

How many years should I use in the depreciation

Stephen E. Grizey :

In other words, if the real estate tax assessment was $100,000. & 25,000. was allocated to the land and 75,000 to the building, you would take the 25% land factor & apply that to the estate's value of $150,000., and you would then have $37,500. allocated to Land & the balance to the building which would then be depreciable.

Stephen E. Grizey :

A commercial building is depreciated over 39 years

Stephen E. Grizey :

straight line method

Stephen E. Grizey :

There are charts you can use to obtain the actual percentages as you go along, but basically if you use the 39 years you'll be ok in terms of the amounts deducted.

Customer:

Do I need to go back on my 2009 tax and redo it showing the depreciation?

Stephen E. Grizey :

You can amend your 2009 (and 2010 if already filed) to claim the depreciation & a refund for whatever the tax affect is.

Stephen E. Grizey :

For 2009 you would file Form 1040-X

Stephen E. Grizey :

You would only need to revise the basic pages involving the rental property & Form 4562 (depreciation) to attach to the 1040X

Stephen E. Grizey :

So Schedule E will need to be revised

Stephen E. Grizey :

all of the other changes in the tax, etc. can be made on the 1040-X

Customer:

I guess my wife needs to try to get her sister to talk and then ask her what she is using for the value.

Stephen E. Grizey :

Well, the estate's value or what was used for probate is a place to start

Stephen E. Grizey :

However, if that value wasn't realistic as it didn't matter, you could get an appraisal

Stephen E. Grizey :

it might be worth it as the value is supposed to be the fair market value at the date of death

Stephen E. Grizey :

Sometimes the lawyers don't realize depreciation/income taxes are involved & assign a value that is too low just for expedience

Stephen E. Grizey :

Basically because it doesn't mean anything for their puposes

Stephen E. Grizey :

Technically, it doesn't matter what her sister does;

Stephen E. Grizey :

You do your thing; she does her own; the IRS isn't going to force the sisters together because of depreciation computations

Stephen E. Grizey :

As long as you do it right & can support what you do, it doesn't matter what her sister does;

Customer:

This whole estate is in a mess because of the sister and step father. Our son is the executer of the estate and has tried to get it settled but the step father has not been helpful. He would not give or allow an inventory to be done on all the personnel items. Finally my son was able to get the inventory, the judge approved it and a week later my wifes mothers and step faters 6000 sq ft house burned to the ground with the 1.2 million dollars of appraised vale of art that belonged to my mother in law in it.

Stephen E. Grizey :

Of course it would make sense if they both did the same thing, but if either one is disagreeable (it happens) then it doesn't matter what the other one did.

Stephen E. Grizey :

Wow, what a disaster.

Stephen E. Grizey :

When did she die?

Stephen E. Grizey :

Is the total estate less than 5 million?

Customer:

Plus she had 2 cd of 100,000 each in her name and the step fater changed them into his name

Customer:

she died in sept 2008

Customer:

the estate is less than 5 mill

Stephen E. Grizey :

different rules re the estate tax then

Stephen E. Grizey :

That doesn't matter for a 2008 death

Stephen E. Grizey :

It shouldn't affect everything outlined re the building

Stephen E. Grizey :

Are you sure the warehouse is only worth 150,000.?

Customer:

so it is the date of death not when the estate is finally settled and distributed

Stephen E. Grizey :

What state are you in? what state was your MIL a resident of?

Stephen E. Grizey :

Correct it is the date of death

Customer:

That is what the warehouse was appraised at by the insurance company my mother in law had

Customer:

Texas on both

Stephen E. Grizey :

in terms of value or possibly an"alternate valuation date" which is a date 6 months after the date of death, but that involves an election by the estate and that value can't be higher & has to be used for everything

Stephen E. Grizey :

appraised for what purpose?

Customer:

insurance

Stephen E. Grizey :

OK

Customer:

We have not been in the loop on this whole process as my son is the exicutor of the trust

Customer:

and he has not been very forthcoming on all the details

Customer:

really a big mess

Stephen E. Grizey :

Sounds like a typical mess when family/money get involved.......it is too bad.....

Stephen E. Grizey :

So what's the deal with the fire & the artwork? any insurance on that?

Stephen E. Grizey :

With that kind of value there should have been?

Customer:

The will states that if either of the son in laws gets involved then that daughter can loose her portion of the estate so I have tried to stay back but my wife will not push our son to get things done

Stephen E. Grizey :

Yeah, you are what we call an "outlaw"...........ie. the son-in-laws or daughter-in-laws

Stephen E. Grizey :

So your son must have really been trusted by your MIL?

Stephen E. Grizey :

Sounds like the depreciation is the least of your problems

Customer:

The art work included ivory and jade statues dating back to the ming dynasty some encrested with diamonds and other jewles, original art work etc. The fire supposedly was started by lightning but the house was allowed to burn out for 3 days by the volunteer fire department so there is little evidence left. None was insured

Customer:

The house and contents were insured but the artwork was not on the insurance itemised

Customer:

sorry about some of the speeling

Stephen E. Grizey :

Well the jewels must have been recoverable?

Stephen E. Grizey :

no problem i kan't spel tooo good either; spel chk savs me

Customer:

I guess but now the step father said he can not talk with any of us except the siter who he is now living with

Stephen E. Grizey :

Please remember to "ACCEPT", it is the only way we get credit for our work. Feedback, if you have time, and bonuses, where you feel they are warranted, are always most appreciated. Thanks again for using our service. I'll be happy to answer any follow-up questions you may have.

Customer:

and we are not allowed on the property. My son has got his attorney, who I think is not a good one, to file a claim with the insurance company and to notify step fathers lawers

Customer:

I told my wife that since the judge rulled the property belonged to her mothers estate and the step fatehr did not hand it over he is liable for it wheather he had it insured or not

Customer:

wow my typing is rusty

Customer:

her mothers jelwery was in a safe deposit that is in sons name and he has sent a letter through his lawer to step fater lawers saying he wants to distrute it equally between the two sisters. I told my wife since her sister is controlling the step dad he should not give her anything until the step dad gives the CDs bck and pays the este for the loss of the art

Customer:

Really a mess isn't it!

Customer:

The will was simple but there are three trust involved, one was my mother in laws name only, one in her and step dads and one in step dads only. Until mothers death my son was her favorite and they had given him there ranch and he ran errands for them and helped them. They were very close to him and his children.

Customer:

When she was in hospital dying the sister in law comes in and takes over having not wanting anything to do with her mother before and vs versa. Step father is in his 80s and some what senile or forgetful. Step father's first wife was a domineering controlling bitch as was my mother in law and sister in law. I guess he likes that kind of women and treatment. My wife is sweet and very caring and does not want to hurt anyone so she does not stand up for herself when it comes to her parents. Sister in law has got him to change his will which left some things to both my wife and her and most of it to our son

Customer:

The depreciation is just the most time critical as we need to finish our 2010 taxes

Stephen E. Grizey :

Well, you've got your answers to the depreciation questions & that was all the original question involved, so if I've satisfied you in that regard, I'd appreciate it if you would "ACCEPT" as that is the only way we get credit for our work.

Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
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