Posted: 8/21/2026 3:37:33 PM EDT
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Looking to move out of the city in a couple years when the last kid finishes high school. Wife is apprehensive about being "far away", despite having grown up on a farm. Never had a rental home so I've read up on the tax aspects and came up with a hare-brained idea, tell me what I'm overlooking: We currently own house A and would buy house B. Make house B a rental, do a bunch of work on the house while it is a rental to get the deductions, then move into it after a couple years and rent out house A. The whole purpose is to take deductions and give flexibility. The wife likes the "trial period" aspect and I like that we could fix up an old house in the country however we want and deduct a lot of the expenses. After a couple years we could sell either house (or both and move elsewhere) while retaining the $500k exemption on both (which would let us keep all the money the deductions saved us). My tax questions are: 1. We would get the $500k capital gains exemption on house A if we sell it within 3 years of moving out and on house B if we sell it after living in it for 2 years or more, correct? If we sell both houses in the 2-3 year window can we get the $500k exemption on both houses in the same year? House A has significantly increased in value since we bought it, so getting the $500k exemption on it is mandatory. 2. If we have more deductions on house A than we get in rental income, the deduction remainder (the portion greater than income) would be "banked" and applied to future rental income. Can deductions "banked" from house A be applied to the rental income from house B? 3. Bonus depreciation seems like a bit of a learning curve, but could greatly increase the deductions we could get in our short timeframe. Has anybody done bonus depreciation? This sounds like a bit of an effort, but the savings add up fast even for modestly priced real estate. We're at the upper end of the 22% bracket and pay 5% state income tax. Am I crazy? |