This is the response I got back from our accountant when telling her that we shouldn't use FMV at time of rental conversion. Do you have any thoughts on her response below?
OK here are your options:
You have to use the FMV at the dates of conversion of the rental, what we had was the 112,000 if this wasn’t the case we need the documentation to catch it up but will also have to recalc depreciation as well. Typically whatever we put on when we start the rental so if this was incorrect we need to do a 3115 a change in accounting method and do the catch up.
Converting to rental;
Basis of Property Changed to Rental Use
When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion.
As stated above this is what would be used for the basis.
