Basis: Value when I purchased vs. when it became a rental?
Hi everyone,
For the purposes of a 1031 Exchange, is the basis value:
a) the value when I purchased my condo (owner-occupied)
b) the value of the property when I moved out and converted it into a rental investment property
I have always assumed the answer was (A) but had a conversation with someone yesterday who suggested I look into this. We lived there for three years, and the value climbed during that time. If, in fact, basis should be the value when it was turned into a rental, I wouldn't be on the hook for the gain that occurred while we lived there. This could be material in terms of our decision to do a 1031 or not.
Our taxes for the past three years have used the purchase value, but if it's possible to use the value upon conversion, I would look into amended returns for those years to correct basis.
For a SIMPLIFIED example, imagine value was $300K upon purchase, $400K upon conversion, and $500K now. I sell today, is my basis $300 or $400? A gain of $100K vs. $200K would be a real difference.