What Cost Basis To Use When Converting Primary Home into Rental?

[Ryan Rabe]

I have a question about two condos that I used to live in, but then turned them into rentals.

The numbers I am using are not exact.  I am using them to get an idea on how others determine cost basis.

Condo 1:

I purchased the condo for $90,000 and lived there for about 10 years. When I converted the condo to a rental it was worth $140,000. My accountant used the $90,000 for the cost basis and depreciation. I feel that he should have used the $140,000. If I sell it now, I will be taxed on the difference between my selling price (possibly $160,000) and the $90,000. I should really be taxed on the selling price ($160,000) and the $140,000 if my accountant would have converted it correctly using the Fair Market Value (FMV) at conversion. Is this correct?

Condo 2:

I purchased the condo for $360,000 and lived there for about 10 years. When I converted the condo to a rental it was worth $310,000. My accountant at that time did use the $310,000 (FMV) at the time of conversion for my cost basis and depreciation.

Am I correct, in thinking that Condo 1 was setup with the incorrect depreciation schedule, because my accountant used the purchase price as opposed to the FMV at the time of the conversion? If I am correct, does anyone know if I can still claim the FMV on my taxes when I sell the condo as opposed to using the cost basis that my accountant used for depreciation?