Some questions about turning a vacation home into a rental.

[Miss Prim]

I usually post stuff on the Post fire forum, but I have a question that is probably going to sound dumb and I think I know the answer, but just wanted a verification. 

We have a cottage on a lake and have recently purchased another one because our extended family is now too big for the original one.  It actually was cheaper than adding on to our existing one.  So, we were going to put the original cottage up for sale.  We have since had someone want to rent this cottage.  I think this might be a good idea at least for a few years because my sister-in-law who owns half and I are both on the ACA and don't want the capital gains on the place to mess with our premiums.  My husband is already on medicare. 

My question is if I turn it into a rental, do I depreciate it based on what we originally paid for it, or what it is worth now?  We are already landlords as we have a single-family house and also rent our basement apartment out, so we have had rental property for over 30 years. 

We will have a small mortgage on the new property, so we may have enough to file schedule A again.  Everything else we own is paid off and the our rental has been fully depreciated.

I may have some other questions, but this is the main one right now.

                                                                              Miss Prim

[Goldielocks]

When you have a "change of use" you need to update your actual cost basis, for depreciation and capital appreciation, to what it actual is, on the date the use changes (today, not original).
This may also trigger tax implications for the old use as personal property.  For personal residence ---> rental, this is the issue.

BUT -- the question is -- does moving from personal property (not primary residence) to rental qualify as change in use?  Likely not, especially if you do not rent it out 365 days per year, so can claim use of it when it is otherwise empty.

[Miss Prim]

Thanks for the reply goldilocks.  It turns out that the people who wanted to rent the place can only afford $650 per month!  The house is worth at least $80,000, so this in no way would work as a rental property!  And it would have been rented year round. 

So we decided to go ahead and put it up for sale.

                                                                                                  Miss Prim