Client recently asked a good question, worth passing along.......
Married couple bought a rental 4 years ago. Has done well on it and moved in as their primary residence 2 years ago. Now they want to sell. They ask how to save taxes.
There are several options, but one, if this suits you, is to move into the rental and set it up as your primary residence. If you stay 2 years, then you can exclude part of the gain. (if you sell your primary residence and had lived in it any 2 of the 5 years prior to the sale, up to $500k of profit for marrieds (single $250k) can be excluded. ) Here's an example:
In the case of my client, they've made $500k profit since they bought it. Since it was rented half the time of ownership, then half of the profits cannot be excluded. But half can! In this case, up to $250k of profits can be excluded from tax.
Bottom line: if you have a rental and are in the position to move back into it and use it as your primary home, then significant taxes can be saved if/when you sell it.
Hope this helps. Feel free to ask questions.