Cost Basis of Converted Property

[Peter Vanzino]

I have a property that converted from personal use to a rental property in 2017. For depreciation on my taxes, the cost basis was defined with the fair market value at time of conversion. I am considering selling now, would the capital gain be based on the FMV in 2017 or the adjusted cost basis (purchase price + capital improvements - depreciation)? I think it is the adjusted cost basis, if that is correct, does it matter that this hasn't been defined in my tax returns previously?

[Wayne Brooks]

What value you used for depreciation upon conversion has no bearing on your gain...it is as you suspected. I assume you know that the "value" upon conversion to a rental for depreciation is the Lower of FMV, or your existing cost basis, you don't get to choose.

[Peter Vanzino]

Thank you Wayne. The FMV at conversion was significantly lower than my original cost basis, so I just wanted to confirm just in case.

[David M.]

@Peter Vanzino

Unless I’m not understanding something g, I’d think it’s a bit of both…. Your cost basis your fmv at the time less depreciation etc…. Your tax liability will be between capital gains and depreciation unrecapture…

[Natalie Kolodij]

You gain will be sale price- closing costs- OG Basis - Depreciation. 

The lower FMV basis used for depreciation is only for that. The determined depreciation Adjusts that basis but the gain is based on actual purchase price + adjustments