When asked, "What was the fair market value of a 1st-time rental property". Fair market value at the date of purchase (2007) or beginning of the rental year(2020)?

[Critter-3 · Accepted solution]

Actually the program will ask for both ... the adjusted cost basis of the property and the FMV as of the date of conversion.  For depreciation you will use the LESSER of those 2 figures ... follow the interview screens slowly and carefully ... read the blue learn more as needed. 

[ToddL99 · Accepted solution]

The fair market value (tax basis for depreciation) of a 1st-time rental property is the lesser of the adjusted basis of the property (its original purchase price plus cost of improvements) or the fair market value on the date it was placed into rental service.

 The Internal Revenue Service (IRS) defines the tax basis of a rental property as the lower of fair market value or the adjusted basis of the property. You can calculate the tax basis of a rental property by calculating the fair market value of the property and then comparing it to the adjusted basis of the property.

See How to Calculate the Basis in Rental Property for further explanation and an example.

[Carl]

simply put, your depreciation value is is the *lower* of

a. What you paid for the property when you originally purchased it

b. The fair market value of the property on the date it was converted to a rental.

Typically, what you paid for the property will be the lower value, and that will be the value used by the program for setting up the depreciation schedule. This was not typical in the past, if the property was purchased before 2008 and placed in service between 2009-2016 or there-a-bouts.

Overall, nowadays I would expect what you paid for the property when you purchased it, to be the lower value. That value would be the one used as the cost-basis for depreciation.