Tax on Conversions from Rental to Primary Residence
Converting a rental property into your primary residence can have a number of tax implications, both federal and state. Depending on your current tax situation, you may be liable for capital gains tax. This is the case if the property has increased in value since you first acquired it. If this is the case, then you can take advantage of the principal residence exemption, which allows you to exempt some capital gain from taxation if you have owned and lived in the property for at least two of the previous five years. This exemption is available whether you are an individual or a couple filing jointly.
You may also be liable for other taxes such as the recapture of depreciation deductions. When you convert a rental property to your primary residence, you may need to pay taxes on the depreciation you have claimed previously.
It’s important to consider the tax implications of converting your rental property to your primary residence before making any decisions. We recommend that you seek professional advice from a tax advisor to help you understand your tax obligations.
