Conversion of Primary Residence to Rental - Posted by Derek

Posted by Ronald * Starr(in No CA) on June 28, 2003 at 01:06:53:


Sure, give him a call. His office is in Wilsonville. He graduated from Gresham High School. My father moved to Gresham after I left home and Roger, being younger, went with him.

I haven’t checked out the market in your area too much, but in general house prices in Portland are quite high, which tends to make them not very good for rentals.

Also, because of the low interest rates on mortgages and ease of getting a mortgage, many good renters are buying houses. You might want to consider buying run down houses, getting them fixed up, and then reselling them to homeowner-occupants.

Good InvestingRon Starr*****

Conversion of Primary Residence to Rental - Posted by Derek

Posted by Derek on June 27, 2003 at 20:23:48:

Hello all,

I would appreciate the advice of the group on the following scenerio:

I have a house (ranch style) that I bought 10 years ago for 100K that’s worth about 160K now. My wife and I would like to move into a new residence and rent the Ranch to her parents who need to both downsize and avoid the costs and hassels of maintenance.

I know that if I sold my residence today, I would not be liable for capital gains tax on the sale. I also know that if I turn the house into a rental, that 5 years down the road I lose this benefit. I assume after that, I would be taxed for the entire amount of the house (adjusted for depreciation) as capital gains when I sold it.

It doesn’t seem too smart to lose the tax benefits. However, I also want to keep the house.

I’m hoping that someone else has faced this scenerio and might be able to offer some alternative strategies that might help me out.

Thanks in advance,


Check on a deemed Sale - Posted by SuperCat (IL, KY)

Posted by SuperCat (IL, KY) on June 27, 2003 at 22:44:18:

Check on a deemed sale. You can deem the property sold at 160k and use the personal residence exclusion. Once deemed then you turn it into a rental with a basis of 160k. Check with an accountant to make sure this is a possibility, but I believe it would be a simple way to accomplish your goal.

Re: Conversion of Primary Residence to Rental - Posted by David TN

Posted by David TN on June 27, 2003 at 21:58:06:

I thought Ron had great advice.

I also am not an accountant or an attorney, so check with a professional before you take my advice.

If you have a corp., sell the house to the corp. for the higher price and take your personal gain on the house. Then later when the corp. sells the house, it is with a higher basis.

Try this, after checking with attorney - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on June 27, 2003 at 21:03:01:


Actually, after three years you would lose the $250K/person capital gains exclusion on federal taxes.

I think you have to make up your mind. Do you want to convert this to a rental or not? If yes, you will forgo the tax exclusion.

Now, one possibliity would be to sell the property and take the capital gains exclusion. Then buy a different property as a rental and rent to whomever you choose, including the relatives.

You might run this one past an attorney and tax CPA: You sell the property to the relatives with virtually no money down. This gives you an exclusion from capital gains tax. The relatives later resell to you at the same price you sold to them. No gain for them, thus no capital gains tax. You now have a new basis in the property which is the value at the time that you sold to them. Hmmm. If this were higher than the apparent market value at the time you sold to them, some of your future appreciation would be sheltered by this higher price. Hommm. Talk with some professionals before you try it. I’m not an attorney, I’m not the CPA, that’s my brother Roger, in OR.

If the relatives lived in it for over two years while being the owners, they could resell to you for whatever price you could agree upon. The would have no capital gains tax because of the homeowner sale exclusion. You would own the propety at a higher basis, perhaps even higher than the apparent market value.

Good InvestingRon Starr***

Re: Check on a deemed Sale - Posted by Dave T

Posted by Dave T on June 29, 2003 at 24:38:23:

The “window” for accomplishing a deemed sale closed in October 2002. This option was only available for the 2001 tax return you filed in 2002.

Re: Check on a deemed Sale - Posted by Derek

Posted by Derek on June 28, 2003 at 20:27:55:

Well, did some searching on this topic. Seems that I could do it, but the IRS would tax me on any appreciation. Basically, invalidating my primary residence exclusion. Oh well.

Here’s a good article:



Re: Check on a deemed Sale - Posted by Derek

Posted by Derek on June 28, 2003 at 18:23:43:

Thank you very much! Sounds interesting, I’m going to check it out.


Re: Conversion of Primary Residence to Rental - Posted by Derek

Posted by Derek on June 27, 2003 at 22:00:06:

Thanks David!

My father and I were talking about doing this with an LLC. Sell the house to him, he puts it in an LLC. Hang onto it for awhile and then sell the LLC back to me.



Re: Try this, after checking with attorney - Posted by Derek

Posted by Derek on June 27, 2003 at 21:34:45:


Thanks tons for taking the time to help me out. I really, really appreciate it.

I’m just starting out in investing. I’ve been an RE agent in Gresham, OR (not too far from your bro) for about a year and have been recently looking for a CPA-advisor to help me out with some of this kind of stuff.

In addition to the arrangement with the parents that I mentioned, I also have been discussing the possiblity of purchasing a few rentals with a friend of mine (he has the cash/I put the deals together and manage).

I guess part of my problem is that it is very hard to find a good advisor that you “click” with, especially since I am very small potatoes at this point in time.

I was thinking of giving Roger a call and seeing if he was interested in a new client. I really like the idea that he is active in all of the areas I am and probably has seen a thing or two.

What do you think?

Thanks very much,