Non-qualified use means the period during which home was not used as the principal residence.
When a home is converted to a rental property and later sold there are special items that need to be accounted for when calculating gain or loss on the sale
The IRS requires that you use the LOWER of the original purchase price, 2002 in your case, or the fair market value when it was converted to a rental in 2015 as your basis.
However, there are other factors that must be considered in calculating the gain/loss on a rental that was originally your home.
If a residence converted to a rental property is later sold at a gain, the basis in the converted property is the original cost or other basis plus amounts paid for capital improvements, less any depreciation taken. If the sale results in a loss, however, the starting point for basis is the lower of the property’s adjusted cost basis or FMV when it was converted from personal to rental property (Regs. Sec. 1.165-9(b)(2)).
This rule is designed to ensure that any decline in value occurring while the property was held as a personal residence does not later become deductible on the sale of the rental property.
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