Converting Your Home to a Rental

If you plan to convert your personal residence into a rental property, consider first selling the home to your S Corporation. You can avoid taxes on the sale with the home-sale exclusion of up to $500,000 and potentially increase the rental property’s depreciable basis, which provides for a greater depreciation deduction over the life of the rental. If you don’t sell the home to your S Corporation and instead just convert it from personal to rental-use, then you will lose the $500,000 home-sale exclusion if you rent it for more than 3 years, and you can only depreciate the historical cost of the home rather than the higher fair market value of the home.