Please call IRS for sure.
The key point is the cost base. It shall be either your purchase price or the market value when you start the rent whichever lowest.
So for your case, capital gain is still $400K.
In my previous post,
http://web.wenxuecity.com/BBSView.php?SubID=tzlc&MsgID=205463
it describes one situation: When a homeowner see the house value drop and want to take tax advantage by renting it out, then sell in loss late and claim tax loss because when you sell the main home, you can't claim tax loss even your sold price is lower than your purchase price. IRS just wants to stop this loophole.
