For depreciation on my rental property, do I use the assessed value the year we bought the house or the year we converted it to a rental?

TT asked for closing costs and more from my original settlement statement on the purchase of the home which was several years before we converted it to a rental.  I don't have that paperwork any longer.  Is it still needed?  We bought the house in 2006 and just converted it to a rental in July 2018.  

Neither.  The assessed value is very different than the fair market value (FMV).  Assessments can be higher or lower than FMV.  The IRS lets you know that you must base the depreciable value of the rental property on what you actually paid for the property or the FMV whichever is lower on the date of conversion.

• Fair Market Value (FMV) is an estimate of the market value of the property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in  the market.  This is basically what a property sold for in your neighborhood with the same or similar specifications and conditions.

For your convenience I have included some instruction on how you enter a rental property that was converted to a rental property. 

Beginning with the month it became available for rent this would be the first month of actual rental conversion.  This does not have to be the first month it was rented, however it does have to be a month where it was decided it would be available to be rented. 

There are special steps when a property was converted from personal use to rental use.  TurboTax will carry the personal portion of mortgage interest and property taxes to the itemized deductions and the rental portion to the Schedule E.

In TurboTax Home & Business follow these steps and the screenshots attached.

• Business Tab
  
• Rental Properties
• Click Yes
• Click None of the above for Real Estate Professional
  
• Click Edit or continue to enter it for the first time
• Enter property address and owner
• Continue
• Click Single family home
• Click New and Converted to Rental
• Click Continue and Continue
• Click No this property wasn’t rented all year (unless the answer is yes)
  
• Enter days rented and days of personal use
• Click continue
• Select the appropriate response on ownership
• Continue
• Click Yes I owned this property all year
• Click Continue
• Click Yes I am an active participant
• Click Continue
• Click No or Yes whether you paid more than $600 in services to one individual
• Click Enter my rental info myself
• Click Continue
• Click None of the above unless something applies to your area
• Click Update on Assets
• Click the appropriate answer for purchases less than $2500 (I selected no in my test)
• Click continue
• Select the appropriate response to capital improvements to the home in 2015 (I selected no in my test)
• Click Edit for house asset
• Select Rental Real Estate, then click continue
• Select Residential Rental
• Enter the required information (Description, Cost, Land Value if added to cost, date acquired)
• Click continue
• Select No, I have not always used this item 100% of the time for business
• Select I used this item for personal purposes before using it in this business
• Enter the date in 2015 you began using it for business (be sure to account for the days of rental use/personal use)
• Do not enter a percentage, it should already be populated for you
• Click continue
• This screen shows the estimated amount of depreciation and you can select the details button

Thanks for the great reply!  Does anybody have any tips on how to know what the FMV would have been?  My appraisal for when I bought the house in 2010 doesn't break down the land value from the structure value the way the assessed value does, so I really don't know what it was worth when I bought it.  I also didn't have an appraisal when I converted into a rental, so I don't know what the structure was worth then either.

The assessed value in total prorated by building or land would provide the percentage for the land value or building value of the cost or FMV whichever you decide to use based on the information above.  You can check with a realtor to see if they can help with the value in your area for your house.  The courthouse would carry sale records also.

I have a follow-up question on how TT is calculating the depreciation.  I used the house as a rental for 47% of the year.  The cost net of land is $136,564. When I calculate the depreciation for the year, I do (136564 * 0.47) * (1/27.5) = $2334.  Turbo tax is showing it as $1070.  I know there's a limit to how much of a loss you can claim for a year, but with this depreciation amount, my rental is actually still profitable by about $1000 for the year... so why isn't it giving me the full depreciation amount?

Since it was placed in service this year it's a 1/2 month for the first month and a full month for each month after that.  Next year you will see the full year amount.

Fair enough, but even if I take out July, my calculations don't come anywhere near the $1070.  That just changes the percentage to 41, so I get:
(136564 * 0.41) * (1/27.5) = $2,036, still just about double what Turbo Tax is calculating.

Can you please help me out on the math here?  What's the actual formula?  Help me understand how I'm calculating this wrong.

Half year for rental conversion.  The rate will be from the depreciation chart which I have attached for you and the math a close estimate of the calculations.
136564 * .01667 (chart) /12 months * 5.5 months (mid-month conversion removing the personal months of use for 2015) = 1043