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.
Increase in value of property due to market conditions. When you sell appreciated property, you pay tax on the appreciation since the date of purchase. When you donate appreciated property held long term, you may generally deduct the appreciated value.