With regard to the depreciation, the auditor and Lisa are correct; use the lesser of the two.  If the regulations aren't clear to you, look at Pub 946, page 12, Property changed from personal use. 

A few other points:

The land isn't depreciable, so it's value is removed from the depreciable amount of the property. 

Second, if any improvements were made to the property after purchase and before it was put into service the costs would be added to the basis.  And of course any improvements while in service are also added to the basis.