Does step-up in basis apply to depreciation?

[Benny]

Hey guys, I know that assets held until death get passed onto heirs at the market value at the time of death, and this is commonly called the step up in basis. However, does this step up in basis apply to depreciation as well?

What if a property has been fully depreciated, and it passes onto the heir at market value. Sure the heir doesn't have to pay any capital gains tax effectively if they sell it immediately, but what if they want to hold onto it and rent it out?

Can they depreciate it all over again, starting from the current market value?

[aslan]

Yes, once you inherit property, you can start depreciating from fresh again. This is the same whenever and however you acquire new property. The previous owner depreciated it, but this has nothing to do with you as the new owner. You are free to begin depreciating from your cost basis, which would be the market value at the time of death.

It's actually crazy how the tax code is written, as it really benefits real estate owners, and investors in particular. Very powerful, especially if used in conjunction with 1031 tax deferred exchanges (see link below).