For depreciation purposes, the basis is the lower of your actual basis (generally cost, plus capital improvements), or the property’s fair market value on the date of its conversion to rental property. Remember that only the home can be depreciated, so an allocation for the land must be made; the land is not depreciated.
The difference between amount realized and adjusted basis on the sale or exchange of capital assets. Long-term capital gains are taxed favorably. Capital losses are deducted first against capital gains, and then again up to $3,000 of other income.