I am converting my second home into a rental property. I made capital improvements leading up to the conversion. My understanding is that the tax basis of the rental property is the lesser of the original cost or the value when it is placed in service, plus any improvements, less any depreciation taken. If I made capital improvements of $35,000 before the conversion, would this amount be additive to the FMV cost basis of the property value when placed in service? If the FMV is determined to be $250,000 at the time of conversion, would the $35,000 in improvements be additive to the FMV tax basis if I sell in the future?
