I purchased a house in 2017 and lived in it as my primary residence until mid-2023, when it was converted to a rental.
For my 2023 tax filing, I used TurboTax to enter all the information about the rental income and expenses, including depreciation of the real estate asset (i.e., the house).
When I re-visited the 2023 tax return this year, I noticed that the cost basis for depreciation was the purchase price of the house in 2017, not the value when the house was put in service as a rental in mid-2023 (e.g., the assessed value or market value). Is that correct?
Or should I have entered the cost basis as the value of the house in mid-2023, when the rental started? If that is the correct choice, do I need to file an amended return for 2023 and notify the IRS of a change to accounting method via Form 3115?
For what it's worth, the market value of the house increased ~50% between 2017 and 2023, so there is a big difference.
