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IRS.gov Website
Publication 527
taxmap/pubs/p527-013.htm#en_us_publink1000219148

Property Changed
to Rental Use(p15)

rule
If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use.
You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes.
You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040).
taxmap/pubs/p527-013.htm#en_us_publink1000219149

Example.(p15)

Your tax year is the calendar year. You moved from your home in May and started renting it out on June 1. You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance.
Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities.
When figuring depreciation, treat the property as placed in service on June 1.
taxmap/pubs/p527-013.htm#en_us_publink1000219151

Basis of Property
Changed to Rental Use(p15)

rule
When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion.
taxmap/pubs/p527-013.htm#en_us_publink1000219152

Fair market value.(p15)

rule
This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property.
taxmap/pubs/p527-013.htm#en_us_publink1000219153

Figuring the basis.(p15)

rule
The basis for depreciation is the lesser of:
taxmap/pubs/p527-013.htm#en_us_publink1000219154

Example.(p15)

Several years ago you built your home for $140,000 on a lot that cost you $14,000. Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation.
The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500).
On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house.
The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000).
taxmap/pubs/p527-013.htm#en_us_publink1000219155

Cooperatives(p16)

rule
If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. (Depreciation methods are discussed in chapter 2 of this publication and Publication 946.) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts.
If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic.
taxmap/pubs/p527-013.htm#en_us_publink1000219156

Figuring the Depreciation Deduction(p16)

rule
To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Generally, that will be MACRS for any conversion after 1986. Treat the property as placed in service on the conversion date.
taxmap/pubs/p527-013.htm#en_us_publink1000219157

Example.(p16)

Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1.364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × .01364).