How to determine the date my home was first placed into rental service

[tomandjerry1]

There is so much discussion on this topic so sorry if a prior thread has the answer but I would appreciate any comments specifically pertinent for my case.  I own a home that I lived in or 10 years during which I rented out a room thru AirBnB.  During those 10 years I not include any deduction for depreciation when filing.  I then moved out of state and now rent out the entire house and plan to start to include a deduction for depreciation.  Should the start date be when I first rented out the room (even though I did not take any deduction for depreciation) or the point that I started to rent the entire house?   Also, how should I handle the fact that the type of rental (room in home vs. entire home) changed after 10 years?  How do I interpret "the date the property was first advertised for rent" when the nature of "the property" changes from a room to the whole house?  Should/could I consider these as two separate instances of rental?  I understand that the start date is used to determine the cost basis for the purposes of the depreciation calculations.  Obviously there is a large difference between the cost basis for a room vs. the whole home.  Lastly, if I had been using depreciation during the period I was renting out just a room, and now rent out the entire home, how would one handle the new cost basis for the asset being rented?

[DavidD66]

For your current rental of the entire house, the date it was first placed in service is the date you made the entire house available for rent.  Not the date someone signed a lease or moved it, but the date it was ready to rent and you began trying to find a tenant.  Trying to find a tenant could be as simple as putting a "For Rent" sign if the front yard.

If you had been properly reporting the rental of a room in your house and taking depreciation expense, you would reduce your cost basis that you use to depreciate the whole house by the total amount of depreciation that you took on the room rental.  In fact, that is how you should determine the cost basis for your current rental of the entire house.

When you sell the house, you will be subject to depreciation recapture tax on not just the depreciation you took, but the depreciation you were eligible to take.  Unless you want to pay a 25% tax on a benefit you never received, you will need to correct the  prior depreciation.  

You need to file Form 3115, Application for Change in Accounting Method to retroactively claim all the depreciation that you should have taken on the room rental.  You can prepare and file it using TurboTax; however, it is not a simple form, so you might want to consult with a local tax professional.  

Finally, I strongly recommend that you use TurboTax Desktop since you have rental property.    

[tomandjerry1]

Wow.   Thank you so so much DavidD66 for such a timely, thorough, and intelligible reply.  I will definitely pursue Form 3115  to retroactively claim all the depreciation I should have taken on the room rental, and start including depreciation going forward. 

Regarding "that is how you should determine the cost basis for your current rental of the entire house" --

I assume that for the period I rented a room, I would compute the starting cost basis using the FMV of my whole house (excluding land) when I first started renting the room,  but only use the fraction of this based on the percentage of the house that I claimed as a rental.   What's less clear is how I determine the basis now that  I've started renting the entire home.  The FMV has increased in the ensuing 10 years, but do I need to use the FMV from 10 years back when I started renting the room, or at the point that I started to rent the entire house (but reduced by the missing depreciation I could have claimed during the 10 years of room rental).   

 Also, the depreciation period is normally 27.5 years.  Do I start counting from when I first rented just a room or at the point I switched to the whole house (that is, does the recovery period reset to 27.5 years at the point I switched)?

Lastly, I have always used, desktop TurboTax Deluxe for Windows, and cannot imaging using any other tax software.  Thanks again.  - T&J1