Primary Residence turned into Rental

4 Replies

Hey Everyone,

We have just moved into another home recently.  We lived in our recent Residence for 12 years.  I am considering renting out my old home and understand that we will lose our mortgage exemptions on taxes. 

However, Can anyone tell me if I turn my old Primary residence into a rental, do I lose the ability to sell my home "without" paying capital gains from where I purchased it 12 years ago?

Thanks much!

-Marty

@Marty Summers You will retain the ability to use the 121 primary residence exemption as long as you qualify for it.  This means that you sell when you can document that you have lived in the property for 2 out of the 5 years immediately prior to sale.  So if you just moved out then you have a little less than three years that you can rent it and still qualify for the exemption.

When you sell you will still have to recapture depreciation unless you also do a 1031 exchange at the same time.

@Dave Foster would it matter at all that I own the property for 12 years in our personal names...but I want to change it under my LLC for protection? does that change my tax situation that I've lived there the 2 out of past 5 years? thanks again!! -Marty

@Marty Summers , If the LLC is a single member LLC taxed as a sole proprietor then you and it are the same taxpayer anyway. So that would not matter. You do want to watch out for quirks in the state and local laws to make sure you're treating consistent with those. But again that will not impact the fact that you sell a piece of property you own and have lived in for 2 out of the 5 years previous to sale.

Contribution into an LLC that is a regarded entity and separate tax payer??? Let's ask our accountant friends out there in BP nation.

Thanks Dave! The LLC is unders my wife and I.

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