Former Home Converted to Rental: Basis Before Benefit

The fictional situation

The fictional owner moves out and begins renting the entire home. The $18,000 incremental deduction is an assumed preparer input after a separate conversion-basis review; it is not derived from the home’s market value.

Read the numbers correctly

The example assumes 2,200 square feet, a $2,200 Stratum study fee, and $700 of separately engaged implementation work. It assumes $18,000 of additional depreciation compared with the no-study baseline, a 24% marginal rate, and 100% usability in the modeled period. None of these deduction or implementation inputs is a quote or a completed study result.

Calculate the early-period comparison

Assumed tax reduction = $18,000 × 100% × 24% = $4,320. Combined assumed cost = $2,200 + $700 = $2,900. The arithmetic difference is $1,420. This is an undiscounted early-period comparison; it is not a lifetime return, permanent savings estimate or recommendation.

Change the assumption that matters

If conversion basis is lower than the owner expected, the incremental deduction estimate must be rebuilt. A refinance appraisal and mortgage balance cannot establish the study cost pool.

What the example leaves for review

The preparer must establish the depreciation difference, when deductions can be used, the relevant marginal rates, state treatment, later-year depreciation and sale consequences. This example does not calculate bonus eligibility or assign asset lives. Use the fee-benefit tool to substitute adviser-supported inputs, then retain the complete multi-year analysis before commissioning the work.

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