Howdy,

I'm considering to turn my current home into a rental property after purchasing another residence to live in. After purchasing my current home, I significantly renovated it which increased the value. The home's value has also benefited from recent market appreciation.

When the current home transitions into a rental would the depreciable value for tax purposes be based on the Initial purchase price plus the individual improvements that have been made?

I'm aware there's an argument for selling to avoid capital gains as a primary residence and then reinvest in another property. My preference is to hold onto the current home for a long term rental as I know it's been well maintained. I don't want the risk of reinvesting the money to buy another investment property that looks good on the surface, but end up with maintenance surprises.

I don't have complete records to document all the cost of improving my current home. It would be nice, if the IRS permitted a 3rd party appraisal when transitioning into a rental to serve as the basis for depreciable value. This way the recent market appreciation is captured plus all the renovations which are not reflected in the initial purchase price.

Anyone have tips on the the tax implication to consider when turning a primary residence into a rental?

I don't have any tips but theoretically speaking, outside of the improvements, the appreciation you're referencing would mostly be attributable to the value of the land which is not depreciable. Just add what you can support with receipts or any other documentation to the current house basis (not the total basis) and move on.

Speak with your CPA. Seriously, I am not your CPA.

That said, you would depreciate your basis in the home for tax purposes. Your basis in the home is what you paid for the home plus any significant improvements you made in the home up until the time you turned it into a rental property.

You will have to allocate what you paid for the home between the structure and land. You don't depreciate land.

Check with your CPA, you will loose the $250k (single) or $500k (couple) if it was your homestead, tax free capital gain.

Thanks everyone, appreciate the input.