Converting Your Home to Rental Property

When you make this transition you need to depreciate your old home that you have converted to rental property. How do you do that? Do you use the fair market value at time of conversion or something else? The answer is you use the lower of your cost or fair market value at the time you make it rental property. In a rising market for real estate most homeowners have to use their original cost plus the cost of significant improvements. Another step you have to take is to determine how much of your original cost should go to land if you have a single family home since land cannot be depreciated. Most property tax bills will tell you what % of the bill is for land vs the house so use that ratio to allocate an amount to land. Absent that information I allocate at least 20% of the original cost to land. If the rental is a condo,  I usually allocate all of the original cost to the building to depreciate.