Thanks for the reply, Maigahane. To answer your question, I have been claiming the rental income and taking depreciation each year on my taxes. When I say I've been breaking even, that's been BEFORE depreciation is factored in.
Just to put actual numbers to this, I bought the condo in 2007 for $120k and spent about $30k on remodeling in 2008 (believe me, I have facepunched myself into oblivion on this). I do have receipts and invoices documenting the remodeling costs. So $150k total spent buying the condo and remodeling it.
Again, I don't know exactly what the fair market value was when I converted the condo from owner-occupied to rental in July 2010, but I know it was nowhere near $150k. All I really have to go off of are Zillow estimates, but of course those don't take into account the improvements I made in 2009.
Since the condo's FMV was undoubtedly less than $150k when I converted it to a rental, it seems that I have no choice but to take an educated guess at the FMV. Essentially, I would want to report the highest estimated FMV that would not trigger alarms with the IRS. I have no idea how they interpret or analyze these numbers so I really feel like I'm fumbling around in the dark here.