Thanks, Colleen.
I figured there would be a problem. I was wondering what needs to be cleared up in case the 3115 was necessary. TurboTax is misleading to those of us who are not tax professionals in that it does not explain this complication in advance. It would be better if it did force us list a rental home as an asset and depreciate rather than have us find out ten years later while passing all of those returns as "correct". Had it made things clear, I would have seen a tax pro ten years ago instead of going to fix this problem. Paying money isn't a problem since it's going to come out of what we got from the home sale. I just want to make sure this is done right.
My wife purchased this home not long before the crash and it went way underwater. After we got married and she moved in with me, it was converted into a rental while still underwater. That being the case, I'm assuming the FMV was probably below her purchase price. Currently, I don't know what that would have been so this is more complicated than I'm going to be able to handle alone. I'll chalk up paying for TurboTax desktop as another loss and make an appointment for in-person consultation locally.
One last question, since the FMV at the time this became a rental was likely to have been less than what was paid to originally purchase the home, is this going to be even worse or better?
