If you are placing your Condo into use as a rental property, the basis should be the lessor of
- Your adjusted basis in the property, which is cost + improvements - any reason you took a tax deduction on the property value (less common), OR
- FMV of the property when you started using it as a rental.
If you are required to use FMV because it's lower than your adjusted basis, then you allocate the land value proportionately based on the assessor's value. For example, if the FMV as of the time you began renting the condo was $300,000:
- If the assessor's website shows total value of $21,000, with land = $5,000 and the home = $16,000, then the value of your land = $5,000/$21,000 = 23.8%
-
Land = $300,000 * 23.8% = $71,428.57 and the Building = $300,000 - $71,428.57 = $228,571.43
For this information at the IRS website, please refer to page 7 at the following IRS pub. https://www.irs.gov/pub/irs-pdf/p527.pdf
