Property Converted from Personal Use to Business Use

The basis of property that you convert from personal use to business use is the lesser of:

• The fair market value of the property on the date you start using it for business purposes, or
• Your adjusted basis in the property on the date you converted it to business use.

Adjusted Basis

Your adjusted basis in property is your original basis, which may be cost or some other basis, depending on how you acquired the property, plus or minus certain adjustments.  The basis of property is increased for additions and capital improvements that have a useful life of more than one year.  You should keep separate records of improvements, since you will have to depreciate them separately for tax purposes.

Some examples of items that increase the original basis include:

• Capital improvements, such as putting an addition on your home, replacing the roof, and installing central air conditioning
• Local assessments, such as sidewalks and roads
• Cost of restoring property after a casualty loss
• Legal fees for defending and perfecting a title
• Zoning costs

Some examples of items that decrease the basis include:

• Depreciation
• Casualty or theft loss deductions and insurance reimbursements
• Subsidies for energy conservation measures that are excluded from income
• Tax credits for clean-fuel vehicles and qualified electric vehicles