Correct basis for my rental property -- prior sale price, or value at time it was placed in service?

[Montrose8889]

I am selling a condo that I lived in from 2008 to 2013, and rented out to tenants from 2013 to 2019.  

As you might expect, the value of the property fell significantly from 2008 (pre-crash purchase at $200K) to 2013.  As such, when starting to use the property as a rental, I was concerned about overstating the basis and claiming too much depreciation.  I used the appraised value of the property at that time ($150K) from a recent refi as a basis and starting point for depreciation.  I'm not sure if this was correct or not, but I was trying to play it safe.

Now when selling the property and calculating basis for gain/loss, is it appropriate to go back to the original 2008 purchase price, or to stick with the basis that I used for the business (from 2013-2019) and the associated depreciation? 

Thanks for your thoughts.  Numbers mentioned above are approximations for discussion. 

[Anonymous_]

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@Montrose8889 wrote:

Now when selling the property and calculating basis for gain/loss, is it appropriate to go back to the original 2008 purchase price, or to stick with the basis that I used for the business (from 2013-2019) and the associated depreciation? 

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For rental real estate that was converted to rental use, you would use the lesser of your adjusted basis or the fair market value on the date of conversion if the sale results in a loss.

On the other hand, if the property is sold at a gain (which is most likely after depreciation deductions are factored in), then you would use your adjusted basis on the date of the sale to calculate the gain.

To put it differently, if the sales price is higher than your adjusted basis on the date of the sale, then the fair market value on the date of conversion is irrelevant.

[Montrose8889]

Thanks! 

Just to clarify.... the adjusted basis on the date of the sale would be the original 2008 purchase price, accounting for improvements and depreciation -- and not based on the 2013 FMV ... correct?

[Anonymous_]

@Montrose8889 That is correct.