Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use this year.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

Question

Quizplus · Accepted Answer

When converting a personal residence to rental use, the basis for depreciation is the lower of the property's adjusted basis or its fair market value at the time of conversion. Since the fair market value ($390,000) is lower than the adjusted basis ($450,000), the correct adjusted basis for depreciation is indeed $390,000. However, the statement about vacation home rules applying is incorrect because those rules apply to properties used for both personal and rental purposes within the same year, not to a property converted from personal to rental use with no personal use afterwards.

Beulah's Personal Residence Has an Adjusted Basis of $450,000 and a Fair