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