I've owned my rental property for 10 years. It is a 2,000 sq ft 4bd home purchased for $275,000 and I lived in it for 5 years before renting 1 bedroom. For the depreciation, I created an asset in TT then calculated 500 sq ft and placed it in service in year 5 (($275,000*.75)*.25=$51,562.50). In year 7, I rented out another room at 500 sq. ft. and added an additional asset; (($275,000*.75)*.25=$51,562.50. This year, I'm renting the entire house and I no longer live there. Do I add the remaining 50% of the house as an asset in the same manner as before? Can I use the current FMV for that 50%? If so, should I have used FMV in year 7 and is there anything to do about it now?
I've seen some conflicting information saying I should retire all assets and convert the house for personal use and back again to start a new cost basis at 100% FMV and new in-service date, but don't think that would be right when I sell and have to pay recapture. I also have made many improvements that are currently being depreciated and am not sure what to do with those if I retire the house and convert it back.
