Converting an owner occupied property is a preferred way to accumulate real estate assets over a long period of time. I always encourage potential sellers to consider holding onto propety they own and covert it to a rental as opposed to selling and then buying. Owner occupied financing is the absolute lowest rate as well. If it is not feasible then I understand. Additionally if your only source of a downpayment is the equity in the property I understand that as well. It may serve you well to sit down and pencil things out before you move forward with accepting an offer. Run some sample scenarios over the next year or two to see if you can get away with holding the property and being able to come up with the downpayment for another home. If not then I understand. If you have already done all that and made the decision, consider this response moot. Once you sell it, it is gone.
Cap gains exemption is very clear. You must have occupied it 2 of the last 5 years. However losing a cap gains exemption in exchange for the tax benefits of income property is a fair trade. I would not let that stop me.
No the way to do it is to do what is best for you. For most people including myself, breaking the law or risking an audit is not the preferred way to make money.
No the way to do it is to do what is best for you. For most people including myself, breaking the law or risking an audit is not the preferred way to make money.
If you picked up mail there regularly and rented another place, who would be the wiser?
I do not debate the ease of breaking laws or tax codes, nor do I give advice to do so. If it works for you great. If it works for others great. It doesn’t work for me nor would I advise people to do it.
Not advising anything, but the possibility exists. And probably wouldn’t look unKosher assuming that he didn’t buy another place that could be construed as a primary.
[quote=spdrun]The way to do it is clear, just not legal. Keep “living” in the unit…[/quote]
Independent of the legality, treating the rental as a primary may or may not be beneficial.
It depends on your ultimate goals for the property.
If you are going to hold for your lifetime to provide retirement income and pass to your children it makes no sense to continue to treat it as a personal residence for a future tax break on the sale that your heirs would get anyway.
One of the advantages to rental real estate is having the potential for tax sheltered income due to paper losses.
Here are some issues:
1. You cannot depreciate the property or upgrades
2. You cannot deduct insurance, maintenance, utilities between tenants, advertising costs.
3. Limitation on tax deductible interest to $1 Mil.
(If you have two $600k loans you can’t deduct the full amount.
4. AMT limitations on the property tax deductibility.
There are probably a lot of other issues to consider.
Not saying that it’s better to treat as a rental for all cases. But there are plenty of scenarios where cheating and treating as a primary may not even pencil out.
Any idea what’s going on with 13127 Decant Drive? The MLS shows that the listing expired last September at $560K. The listing agent told me today that it’s been on the market for a month in the range of $699-799K. Why is it not showing up on the MLS? What’s up with the pricing? Recent comps are $100K less!
Don’t know what to tell you. Did not see it as an active listing either, only as expired like you did. As much as the market is on fire right now they are on crack if they think they will get that much for that home. When an agent takes a listing they can get an exception and not post it on the MLS but the seller must know and authorize that, which is a stupid thing to do. Call the listing agent again and ask them why the home is not posted on the MLS.
