“When converting a property from personal use to a rental property, I understand you use the lesser of the adjusted basis (AB) or FMV.”----> Correct. For depreciation purposes: Lower of: value at date of conversion, FMV,or AB as you said.
“I've looked at comparable sales in the neighborhood at around the time of conversion. However, what is the best way to determine what portion of the AB or FMV is depreciable, i.e. non-land.”---->FMV in general value determined by a professional appraiser) is ,according to the IRS, FMV is "the price the property would sell for on the open market. The figure has also been described as the price between a willing buyer and a willing seller" who both know about the usefulness and condition of the item. AB is your original basis in your home depends on how you acquired it. If you purchased your home, the basis is its cost. If you built it, the basis is the cost of construction. If you acquired your home by inheritance or gift, the basis is either the fair market value of the home when you got it, or the adjusted basis for the person from whom you received the home. While you owned the home, you may have made additions or improvements that are treated as increases in your basis, or you may have casualty losses, depreciation, if you used part of your home for business purposes, or other items that decrease the basis. These increases and decreases are added to or subtracted from your original basis in arriving at your adjusted basis.
“Would it be acceptable to use the "replacement cost" of the dwelling as outlined in my hazard insurance policy, as this value does not include land?”----> Market value is the price paid for your house. Replacement cost is the price or cost it will take to rebuild your house in the same spot, same size and same quality of construction, at today's costs. Insurance companies use the replacement cost valuation. These can be two completely different numbers.For example, a home purchased in a depressed city neighborhood, may have a market value of $120,000. The exact house, located in a nice suburb, may have a market price of $285,000; however, the cost to rebuild the house after a loss would be the same in either location. The insurance company is looking to insure the home for the full replacement value, not the current market value. Remember, they are going to pay to build you a new home, not buy one for you down the street. So, for your residence converted into rental property, its basis is either the lesser of FMV at date of conversion OR AB of the property at date of conversion.