We have a vacation home, bought in 2003 and converted to rental in 2013 when we couldn't sell it. 2003 Purchase price plus improvements is 152,748 at conversion to rental FMV is 105,000. We used the 105,00 less land for Depreciation. Now we have sold it for 115,000.==============>>it depends.so you sold the CONVERTED vacation home as rental home or as a vacation home ? You can depreciate the tax basis of the building part of a residential rental property,$94,500($105000-$10,500) not the land part over 27.5 years under a “special basis rule” applies to a rental property that was formerly your personal residence. Under the special rule, the initial tax basis of the building portion of the property for purposes of calculating depreciation write-offs equals the lower of the building’s FMV on the conversion date or the building’s “regular basis” on the conversion date. Regular basis usually equals original cost plus the cost of any improvements not counting normal repairs and maintenance.so as longas you sold it as rental home, NOT as vacation home, then your gain’d be allocated to both land and b/d.if you sold it as a vacation home, then your basis’d be its adjusted basis. Anyway as you took depre in the previous years when the home was used as rental home, on sale of the home, you must recapture the unrecaptured sec 1250 depre on your return; sec 1250’d be taxed at ordinary tax rate of 25% as ordinary income aslongas your marginal tax rate is 25% or higher or 10% if your tax rate is 10%.
Pub 551 says the basis for a loss is the lesser of adjusted basis or FMV. If I use FMV I have a gain. I get that I can't deduct a personal loss but it doesn't seem right that I should have a gain when my actual economic loss so great.===========>>>>>>>>>>>>>as said above. When you have a gain you will fall back to original adjusted cost basis .The sale of a home conversion will need to be calculated two ways and recaptured sec 1250 depreciation taxed as ordinary income(however you do not need to account for this aslongas you take a loss in selling the home) is considered in all cases. Both cost basis is used in the calculation and then you get an and/or factor.