What is the cost basis for a home I lived in, converted to a rental, and then sold?

by Nicholas J. Crocetti, CPA | Sep 28, 2018

What is my cost basis for a home that I lived in, then converted to rental property, rented out for five years, and then sold in 2018?

You have taken your personal residence and converted it to a business (rental) asset. Since it is now a business asset, the property should have as a tax basis the following: original cost, plus improvements, less proper depreciation (allowed of allowable). One caveat is that if the “fair market value” of the property was less than its basis at the time of conversion, then the depreciable basis (tax basis) should have been reduced to the “then fair market value.”

I recommend you seek out the help of a CPA who specializes in taxation to determine all of your specific facts and circumstances, such as whether or not you had a causality loss or whether a 1031 transaction was in the mix.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Nicholas J. Crocetti, CPA, is director of tax advisory solutions with CBIZ MHM LLC in Plymouth Meeting, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Financial FAQs

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.