Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. If you took less depreciation than you could have under the method you selected, decrease the basis by the amount you could have taken under that method. If you did not take a depreciation deduction, decrease the basis by the amount you could have deducted.
If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year.
If you deducted the incorrect amount of depreciation, see "How Do You Correct Depreciation Deductions" in chapter 1 of Publication 946 (pdf).
Fair market value defined.
The fair market value of your home is the price at which the property would change hands
between a buyer and a seller, neither having to buy or sell, and both having reasonable
knowledge of all necessary facts. Sales of similar property, on or about the date you begin
using your home for business, may be helpful in figuring the property's fair market value.
Permanent Improvements
Adjusting for Depreciation Deducted in Earlier Years
Figuring the Depreciation Deduction for the Current Year
Information courtesy of the Internal Revenue Service.
