“The starting point is the property’s (1) adjusted basis at the time of conversion or (2) fair market value at the time of conversion, whichever is lower.”
Tax law has always said the above. ‘Adjusted Basis’ is factual. That’s what you paid for your house PLUS improvements. Pretty easy to prove. However ‘Fair Market Value in 2009’ is subjective. It’s your call. You’re not a real estate professional are you? What is your place worth right now? It’s worth what you paid for it, of course. After you’ve rented your place for 5 years (year = 2014), how could the IRS ever argue with your estimate of FMW in 2009? Buy some confidential time with a good tax professional. Maybe try a tax attorney.
