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.
For calendar year 2007, taxpayers covered by an HDHP may contribute up to the lesser of the annual deductible or $2,850 ($5,650 for family coverage).