My wife and I would like to downsize our primary residence and we are thinking about moving into one of our rental investment properties after the sale of our home. The investment property is the first one I ever purchased and it is the only one that is titled in our name. My remaining properties are titled in the name of my LLC. We have owned this investment property nearly 10 years ($50K+ depreciation). We expect to live in the investment property as our primary residence for at least at least 2 years.
How is depreciation recapture handled in such a case? I know that if you live in a property for 2 of the previous 5 years that any capital gains from the sale of the property are tax free, but how would tax on the depreciation recapture be handled? Are there any strategies that could be used to reduce/eliminate the depreciation recapture, if any? We haven't started the process yet, so we can still implement tax optimization strategies if any are available. Thanks for any help you may be able to provide.