Changing partial rental back to full personal

The original treatment doesn't sound correct. He was not renting a dwelling unit (defined by separate sleeping, cooking, and bathroom facilities), he was renting property with personal use.

Nonetheless, when you sell your house, you begin the computation of gain or loss using adjusted basis. Basis is adjusted by depreciation allowed or allowable.

There are several IRS pubs that address this, look at the IRS web site for "rental" and "basis" in the title of the pubs.

The original treatment was based on the portion of IRS Publication 527 called "Renting part of Property". That publication states:

"If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property.

You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house.

There is no change in the types of expenses deductible for the personal-use part of your property. Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). "

Two examples they give are renting out a room in your house or having a duplex style house where you rent out essentially half your house.

The IRS Pub is very detailed and gives extensive examples of a home changing from personal use to rental or part rental, but it really doesn't say much about what happens to the depreciation if the home changes from rental back to personal at some point without selling the property. Specifically, it doesn't seem to state explicitly what you do with depreciation in the year you discontinue the rental and what you do when you eventually sell years later.

I don't have time right now to dispute the idea that renting a room in a personal-use residence is treated exactly the same as renting a dwelling unit, but that wasn't your question anyway.

In any number of pubs, including ones about depreciation, basis, and selling your home, you will find they all say to use adjusted basis when disposing of a property, and that depreciation allowed or allowable is one of the adjustments.