How to adjust the actual basis of a rental home depreciated at the fair market value

[marechiga]

the home was a second home then it was rented for 2 years so i depreciated at the fair market value which was the lower now they sold the house but i don't know how to do that adjustment in pro series 

[TaxGuyBill · Accepted solution]

If it was sold at a GAIN (more than the cost, after adjusting for depreciation), about 1/2 way down of the disposition area of the Asset Entry Worksheet there is a place to enter the 'Basis if different' (see pictures).

However, if it was sold at a loss (less than the FMV at rental conversion, adjusting for depreciation), you use the FMV amount to calculate a loss.  So don't enter the Cost anywhere.

If it was sold for somewhere between that, you need to make up numbers, and enter it in the "Basis if different" line.  You would take the sales price (on the 1099-S) and add the total amount of depreciation.  Use that for the 'Basis if different', as that will result in a $0 gain/loss.

[dd4vols]

why did you use FMV instead of historical cost?

[Just-Lisa-Now-]

purchase price or fmv at the time it became a rental, whichever is lower, is supposed to be used on a rental for depreciation purposes.

Ive never had this situation, here in CA, values rarely go down!    I would guess youd just replace the asset cost with the actual purchase price to get the correct basis to be computed.