Stepped up basis for rental after spouse death.

[Jack from Ohio]

Husband owned property (land and a house) when the couple got married in 1978. It was gifted to him in the early 70's from his parents. Basis was very little. ($22k)

1996 they moved into a newly built home, turned home into rental. It has been rented continuously since then.

Husband passed away Dec. 2010. All land and property has been deeded and titled to the spouse as of March 2011.

Widow (age 72) now wants to sell the property and get out of the rental game. Sale will be final in May or June of this year.

Question: Does she get stepped up basis on 1/2 or all of the rental property, or is her basis the same as before spouse passing? There was an appraisal done at time of settling the estate. There was very little basis at time of conversion, and depreciation has taken away about half of that. She is looking at a sizeable capital gain without the stepped up basis, and I want to do all I can for her, but do it correctly.

I have received differing opinions from my co-workers, so I thougt I would consult the oracle quality of the knowlege and experience of members of this board.

[Kea]

If it was his separate property the whole time, I believe she would get stepped up basis.

If it was ever put in their joint names then I believe the answer depends on if they are in a community property state or not.

Community property - it all steps up

non-community property - his half steps up, her half doesn't.