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Investors & landlords
@bchenoweth wrote:
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?
Yes, I have one thought: Your accountant is conflating the basis used for depreciation after converting property held for personal use to rental use with the basis used for a sale of the rental. The two bases can be different and the calculation of the basis of rental property sold at a gain, except in inheritance and like circumstances, is the adjusted basis plus improvements less depreciation allowed or allowable.
There is a rationale for the determination of basis depending upon the nature of the calculation. The rationale for using the lesser of FMV (when placed in service) or adjusted basis for the purposes of depreciation is so an owner of rental property that has devalued cannot take whopping depreciation deductions based upon a much higher purchase price (or whopping deductions based upon appreciation while the property was held for personal use).