Tips on changing your primary home to a rental property.
Tips on changing your primary home to a rental property
If you have a primary home, smaller property, and you're buying a bigger property, and then you are thinking of making that smaller property a rental investment, what advice do you need? Let's talk about it. Welcome to Wealthy Wednesday.
Before you change that primary home to an investment property, a couple of things you need to know. Number one, basically, you don't need to do much to change from primary to investment only the major thing you need to do is take the homestead exemption off. Because the homestead exemption is only for your primary home. So if a girlfriend and boyfriend, are not legally married, things happened. So one of them said, okay, let me keep this property, the previous home, keep the homestead. So I don't want the tax to go up and then the other person keeps homestead exemption on the other property. It is fully illegal and you can be in trouble of homestead fraud. So don't do that. If you're not living in the property, don't keep your driver's license with that address. Keep the address on the driver's license of the property, you live in. Have the homestead exemption on that property, not the investment. That is the number one advice I can give it to you because you don't want to be in trouble.
Number two, something to consider because of course you can make it as a rental property. When it comes to income tax, when you're selling a property, making a profit, there is a rule for the homestead property, for your primary home. If you live on that property for at least two years, in the last five years, you're exempt from $250,000 for each person on the profit. So husband and wife can get up to $500,000 profit is exempt from tax. They have to pay zero tax on up to $500,000 together on the profit. So think about this, you have a property here, you live there for more than two years. In the last five years, you have that opportunity to make that money without paying taxes. Guess what happened? Now you don't have a homestead exemption and you rent this property for the next five years. And when you want to sell it, you will lose that benefit. So that's something to consider. Definitely check with your accountant on that. They can give you better advice on that. But this is just basic advice.
So these are the two things you'll need to consider when you are changing your primary home to a rental property. My name is Shawn Bhakta from Remax Residential, South Florida Home Finder Team. And I'm here to help.
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