Your cost basis in the property is generally the amount that you paid for the property (your acquisition cost plus any expenses), including any money you borrowed to buy the place. If you are converting your property from personal use to rental use, your tax basis in the property is calculated differently. Your basis is the lower of these two:
- Your acquisition cost
- The fair market value at the time of conversion from personal to rental use
Improvements made before the unit was available for rent, are added to the basis of the building. Once the property is available for rent, the improvements can be depreciated. For more information see IRS Topic 414: Rental Income and Expenses.
Capital Improvements and Depreciation
IRS Tips - Rental Real Estate
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