Question

How does converting a home to a rental compare with selling it directly?

Answer

Selling directly lets you claim Section 121 right away with no recapture and no rental to run. Converting first adds depreciation deductions that can offset other income, but it also adds recapture at sale, active management, local rule compliance, and a three-year clock on the exclusion. Conversion may produce a better after-tax result for highly appreciated homes when the timing works, and it may not be worth the complexity otherwise.

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