It depends. It will be easier to track your rental depreciation if you use only the garage portion of the cost that is now a rental. If you started the conversion in 2022, meaning the garage was totally rental in that year, you can make corrections so that the 2023 return is correct, then amend the 2022 to reflect the same original cost basis if necessary.
To arrive at the cost basis for this garage below will give some explanation on how to arrive at the amount. For the first year you would include the total cost of the property from purchase to the date placed in service for rental.
Use the original cost of each asset (including improvements before it is a rental), add those together then divide each one by the combined total to find the percentage of the cost for the garage. Use that percentage times the cost basis to find the cost basis for depreciation. The cost basis must be the lower of actual cost or fair market value (FMV) on the date of conversion from personal use to rental use (usually cost is lower).
Use the date placed in service as the purchase date/conversion date.
Example: Original Cost (of each asset on your depreciation schedule)
$10,000 Land = 13.33%
$50,000 House = 66.67%
$15,000 Improvements = 20%
$75,000 Total = 100%
You do not need to include the land since it is not allowed to be depreciated.
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