Take 500K tax free gain or convert primary home to rental property

intangible · April 23, 2019, 1:47pm

This old thread may be of help

Primary Home Tax Free Gain - To take or Not is the question Tax

As it so often happens, our threads here digress. As so we were talking about advantages of primary home tax free gain on the Apple thread. I wanted some feedback on the basic scenario and calculations I did below so posting this as a separate thread. Comments / feedback welcome. The question is: when one is ready to move on from the primary home and has the means to buy another primary home plus maintain a rental, what’s the best approach - (a) convert primary to rental, or (b) sell primary to reap tax-free gain and buy similar rental. For evaluation, let’s consider investment horizon is 10yrs after which rental property will be sold in either case. Scenario: Initial Purchase Price = $500k Assume 100% appreciation in 2-3 yrs Tentative Sale Price = $1M Purchase Price of equivalent rental = $1M Max Tax free gain = $500k Tax saved (at 15% long term capital gain) = $75k Real Estate Txn cost in selling primary and then buying rental = $60k (6% closing cost on $1M) All gains pu…