If you start renting out your former residence, your basis for depreciation purposes is the lower of your adjusted basis at the time of the change or the fair market value (FMV) of the property at that time.

When you sell the property, your basis for figuring a gain is your adjusted basis in the property. On the other hand, the starting basis for computing a loss is the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use and then adjusted for depreciation, capital improvements, etc.

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