How to Depreciate a Deceased Person's Home for Final Tax Filing

You're in a tough spot, but you've got more information than you think! That prior year depreciation schedule is actually quite valuable. From the last year's depreciation schedule, you should be able to extract several key pieces: the original cost basis (what she paid for the property in 1989), how much has been allocated to land value (which isn't depreciable), accumulated depreciation to date, and possibly the AMT adjustments. For filing a final return, you'll need to calculate depreciation only up to the date of death. After that point, the property gets a stepped-up basis to fair market value if it passes to heirs. If the schedule doesn't clearly show the original cost basis or land value, you might need to contact the county tax assessor's office where the property is located. They often maintain historical records that can help establish these values. Sometimes they list the ratio of land to improvements (building) that you can apply to the original purchase price.

After struggling with a similar situation when my mom passed, I discovered taxr.ai https://taxr.ai and it saved me hours of frustration. I uploaded her partial depreciation schedule and some property documents, and their system analyzed everything to extract the original cost basis, land value allocation, and calculated depreciation through her date of death. The system even handled the AMT adjustments which I had zero clue about. What impressed me was how it could reconstruct missing depreciation history from partial records. I was ready to give up and pay an accountant $500+ when a friend recommended this service.

I was really skeptical about taxr.ai at first, but I decided to try it with my father-in-law's estate tax situation. We had some of his records but were missing the original basis for his rental property from 1975. The system actually reconstructed the likely purchase price based on the depreciation amounts from recent tax returns and some property tax statements I uploaded. The report it generated showed exactly how to handle the stepped-up basis calculation on the final return AND provided documentation to support the values if questioned by the IRS. Ended up saving us about $12,000 in overpaid taxes because we were calculating things incorrectly before. Wish I'd known about this service sooner!

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Have you checked if the house was actually being depreciated as a rental/business property? If your friend was just living in it as their primary residence, there wouldn't be any depreciation to worry about on the final tax return. Depreciation only applies to income-producing properties.

One thing nobody's mentioned - you might want to get a professional appraisal retroactive to the date of death. This establishes the stepped-up basis and gives you solid documentation if the IRS ever questions the values. They usually cost around $400-500 but can save thousands in potential taxes or penalties.

I'm so sorry for your loss, and I completely understand feeling overwhelmed - handling a deceased person's taxes is incredibly stressful, especially when you're doing it as a volunteer. Since you found last year's depreciation schedule, that's actually your golden ticket! Look for these key numbers on that document: the original cost basis (what she paid in 1989), accumulated depreciation through last year, and the annual depreciation amount. These should all be listed on Schedule E or Form 4562 from her prior return. For the missing pieces like land value, you can often use a rule of thumb that land typically represents 20-30% of the total purchase price for residential properties, though this varies by location. The county assessor's office can also provide the land-to-improvement ratio they use for tax purposes. One important thing - since this is a final return for someone who passed away, you'll need to calculate depreciation only up to the date of death, not for the full year. After death, the property gets a stepped-up basis to fair market value, which eliminates future depreciation but may trigger depreciation recapture that needs to be reported on the final return. Don't hesitate to call the IRS taxpayer assistance line if you get stuck - they're usually helpful with estate-related questions, though you may need patience with hold times. You're doing a wonderful thing helping with her final affairs.