According to the IRS:
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.
Let's say I made some improvements to the property before converting it to a rental. And let's say I was conservative and decided the fair market value (FMV) was less than my basis plus the cost of improvements, so I use FMV as my basis. Does that mean the cost of the improvements is essentially lost for tax purposes? Or will I still benefit from the cost of improvements when I sell the rental property?