Turning Your Rental Into Your Primary Residence

[Dustin Ruhl]

Real estate investments can come in varied shades. One of these would be for instance the ultimate far sighted vision of one day owing bigger home, yet in the mean time making the decision to downsize ones expenses by tuning one's rental property into a primary residence. A move like this helps with long term budgeting, as overall capital deployments & monthly liabilities decrease. Next, the improved cash profile helps with potential selling projections down the road, while at once building a family, almost hustle free. The greatest benefit in the tax law for property owners is the home sale exclusion. This rule permits single homeowners to exclude from their taxable income up to $250,000 in profit realized from the sale of a personal residence. The exclusion is $500,000 for married couples filing jointly. This qualification requires ownership & occupation of said residence /converted rental as your principal residence for at least 2 years prior top sell date. You do not have to be living in the home at the time of sale & there is no lifetime limitation on how many times the exclusion can be used. Converting a rental into your residence will not eliminate all taxes when you sell it, ownership taxes & deductions. You must also review & recapture depreciation deductions claimed for it each year as the total depreciation you claimed during the rental period is not eligible for the exclusion. You must "recapture"/ report the amounts on IRS Schedule D & pay a flat 25% tax on these deductions, which can have a significant tax impact. Remember that this is just a summary.

Key Takeaways:

• Consult a tax expert on when to make the switch to primary residence. The advantages and savings are all about timing.
• Do maintenance and updates as a rental. This allows you to write them off.
• If you are going to sell primary residence is the way to go. This will save you on capital gains tax.

"There are many reasons why you might want to move into your investment property, but in doing so, you change its status from a rental to a primary residence."