House hacking primary residence avoid capital gains, Tax strategy

[Jason Brooks]

I have a home in the bay area that i bought with a conventional loan. i have about 150k in equity in the home and i am renting rooms. how can i pull out the equity in the house in order to convert my home from a primary residence into more of a rental and eventually move out to the next house hack.  

I am looking for tax strategies.

I am also looking for how i get my primary residence equity out to avoid capital gains of rental.

this residence is in caifornia.

[Natalie Kolodij]

Originally posted by @Jason Brooks:

Originally posted by @Jaron Walling:

@Jason Brooks There are a number of ways to pull equity from a property, but before doing so I'd consider the overall situation for the property. What are the numbers telling you? What can you buy in California with $150K? How long do you plan to keep this property? 

You won't have capital gains tax unless you sell the property and don't meet the 2/5 year exclusion. Being a house hack that shouldn't be a concern. 

I started the house hacking having 150 k equity. Now the residence will be a rental within the next 2 years. How do I get my 150k out of the property without paying capital gains and turn it into a rental. I would write off a lot more rental expenses in my taxes if It wasn't going to effect me during the sale of my house. From what I'm reading. Because I'm renting 2 rooms out of my 4 bedroom house I could write off 50 % or more of my expenses. But if I do so I'll have to pay capital gains on 50% of my profits when I sell the house. I want to reset this house and pull out my primary residence equity and turn it into a rental that I will eventually be able to 1031 until I die. 

A house hack where you're renting rooms without your primary living space like this does NOT prorate your section 121 primary exclusion. 

Right now the rental exclusive square footage shoudl be being depreciated. 

The rental square footage at 100% and then a portion of the share squared footage all get combined into a ratio for deduction a portion of the other expenses (mortagge, tax, insurance, utilites)

When you sell your 121 will not be 50% excluded. 

This is only true with separate living dwellings like if you have a 4 plex and rented 3/4 units- then 75% would be excluded. 

In your case that won't apply- just potential some depreciation recapture.