Yes, you will depreciate the house as a rental.
The basis in the rental, the amount you will base the depreciation on, is the lesser of the Fair Market Value or your adjusted basis. (What you paid, improvements made etc. )
Since home prices have gone up, it is reasonable to assume your adjusted basis is less.
Yes, now you need a value for the house and for the land.
Depending how long ago you bought a house, a Real Estate Broker or Appraiser could give you an estimate of what the value was when you bought.
If that is not possible, ask a Broker to estimate what percentage the land value is to a property comparable to yours.
OR
Use your tax bill to do the same, divide the land value by the total property value.
Say a house worth 500,000 in your area has a value for the land at 75,000. that would be 15%
Next take what you paid and multiply by that percentage, in this case .15.
So in this example, if you paid 125,000 for the land and house, the land was probably 18,750. (125,000 x .15)
The main thing is to use a method that is reasonable, document it and keep it with your tax file.
When you go to sell the rental property, the depreciation will be recaptured, meaning you will most probably be tax on the amount of depreciation you took on the rental. BUT you have no choice, you cannot choose to NOT depreciate and not pay the depreciation recapture. That will be charged whether you took the depreciation or not.
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