Need Help: converting rental into principal residence

[syb65]

I'm thinking of converting my house(100%) into a rental property, and down the road would like to move back in. What are the tax laws associated with this conversion?

[tenth]

You'll be able to claim principal residence on the house when you convert it, so no gain will result going to the rental property. However, upon conversion back, you'll be taxed on the difference between the Value of the house at initial conversion and the value when converting back. Since it's a capital gain, the gain is only taxable on 50% of its appreciation.

[syb65]

so what you are saying is if i move back in to live i have to pay tax on 50% of the gain on fair market value during that time? or is there a tax break if i decide to live in the house for "x" amount of time before selling it again to avoid the 50% tax of FMV?

[Toma]

Originally posted by syb65
so what you are saying is if i move back in to live i have to pay tax on 50% of the gain on fair market value during that time?

Bingo.