Cost basis on sale of rental property

The Cost Basis for your Rental Property comes from the original Cost Basis (what you paid for the property, or FMV, whichever was lower) that you entered when you set up your rental property initially. 

The remaining Cost Basis is that amount, less Depreciation taken over the years.

If you have made improvements to the property while renting that you didn't deduct previously, you can add them to the Cost Basis amount, as well as any Sales Expenses you incurred when reporting the sale. Any Passive Loss Carryover you had will be added to the Cost Basis at time of sale also. 

If you originally entered an incorrect Cost Basis, in the Rental section, you can indicate that you 'converted to personal use' and enter the sale as 'Sale of Business Property' where you can enter the correct Cost Basis.  You've just missed out on depreciation deductions if that's higher than what you set up the property with originally. 

If you lived in the property any time within the last five years, you may qualify to exclude a portion of your capital gain on the sale.  Go through the interview under Less Common Income > Sale of Home to determine this.

Here's more detailed discussion on Changing Rental Property Cost Basis.

@jwnealeigh