Final answer:
The basis for depreciation of property converted from personal-use to business-use is the lesser of adjusted basis or fair market value on the date of conversion. Depreciation is calculated using whichever of these two figures is lower.
Step-by-step explanation:
The basis for depreciation of property converted from personal use to business use is the lesser of adjusted basis or fair market value on the date of conversion. This means that if you have a piece of property that was originally used for personal reasons and then you start using it for your business, you calculate depreciation based on either its original cost minus any previous deductions that applied (adjusted basis) or its value on the market at the time you change its use (fair market value), whichever of these is lower.
For example, suppose you bought a car for personal use a few years ago for $20,000. Over time, you took non-business deductions (like for sales tax or casualty losses), reducing your basis in the car to $15,000. If the fair market value of the car when you start using it for business is $13,000, you would use $13,000 as the basis for depreciation since it is less than the adjusted basis of the vehicle.
For example, let's say you bought a computer for personal use for $1,000 two years ago. Today, you decide to use it for your business. The computer's fair market value is now $800. In this case, the basis for depreciation would be $800, the lesser of the adjusted basis ($1,000) and the fair market value ($800).