Last year, after moving out of our residential property, we converted it to a rental.
When arriving at a Fair Market Value (FMV) for determining the basis for depreciation, we relied on an estimate through comparables that our realtor put together when we had first moved out of the property. This was simply a piece of paper with details of three comparable homes and an 'average adjusted value' for our property.
To determine land/house splits (needed to subtract the fraction of the property attributed to land from the depreciation basis), we used numbers from the original mortgage for the property.
My question is (in two parts, but I believe these parts sufficiently related to count as one):
- Are these documents sufficient, or does the IRS allow only some specific set of documents for Fair Market Value appraisal?
- If the IRS doubted our Fair Market Value, what source would they use to support that doubt? In other words, if we lost these papers, would we have problems with the IRS when trying to sell this property in several years?
I'm hoping to ask this of the IRS directly next week -- but I would love a bit of foresight if there are any experts in the subject.