I took my depreciation on my taxes including additional improvements throughout this period.
Thanks for clarifying that.
I was under the impression I take the FMV when it was converted to a rental for the sale on this years taxes.
No. Your cost basis is the *lessor* of
a. what you actually paid for it (including what you paid for improvements) or:
b. The FMV of the property on the date you converted it to a rental.
So if actual cost was the lessor was what you paid for it plus improvement costs (and it probably was since this was done around 2000-2002) if you just report the sale in the Rental & Royalty (SCH E) section of the program, then the program (not you) will take all the numbers into account and do the math for you.
Otherwise, if the FMV was less than what you paid for it (which I doubt, but won't say it's not possible.) and that FMV was used for depreciation, then you can't report the sale in the SCH E section of the program. You report it in the Sale of Business Property section instead, so that you can use the "real" cost basis and still account for depreciation recapture.
