I believe we need to go into a little more depth here:
- When the property is converted to rental the basis for depreciation is the lower of the adjusted basis on the date of conversion or the Fair Market Value (FMV) of the property at the time of conversion. Generally the basis is the cost of the property plus the amounts paid for capital improvements.
- When the property is sold the basis is calculated differently for gain or loss. When the property is sold at a gain the basis is the original cost plus amounts paid for capital improvements, less any depreciation taken. When sold at a loss the starting point for the basis is the lower of property original cost or the FMV at the time it was converted from personal to rental property
This is a confusing area, so just want to make sure the correct input figures are used for TT.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
