Converting Primary residence to rental property

"Alex M" wrote

You'll need to sell the property within three years from when you placed the property into rental to benefit from the $250k (each) gain exclusion. Beyond that point the exclusion prorates down till it's gone after five years (certain exceptions apply, but not here). Regardless, you'll have some amount of gain based on the depreciation taken (allowed or allowable). Depreciation will be based on the ~~~lower~~~ of your cost or it's market value (it's a declining market right now), so keep that in mind. I suppose if "both" of you are participating in this rental activity, then you would have a default partnership. You will each report your share of profits or losses on your respective personal returns. Get with a local CPA or EA to get the reporting structure figured out before time passes. IE: Now instead of April 12th. Talk to a local real estate attorney about the title issues.

-- Paul A. Thomas, CPA Athens, Georgia

You should consult a tax attorney promptly.

The rules for taking advantage of the tax break on sale of one's main residence definitely require that you used it as your main home during 2 of the previous 5 years. It is possible that consideration will survive a divorce -- but only in 2 different chunks (i.e., $250K each); however, that's further complicated (though not fatally, I suspect) by your establishing the property as a rental. Others may wade more deeply into this thicket; I'll stick with my advice that you consult a tax attorney promptly, and make sure you conduct yourself in accordance with his/her sound advice. Bill