Thinking about turning your primary residence into a rental property? Before you hand over the keys to a tenant, there are important tax rules every homeowner and real estate investor should understand. In this episode of Tax Tuesday, Anderson Advisors attorneys Eliot Thomas, Esq. and Amanda Wynalda, Esq. answer listener questions about converting a personal residence into a rental, including one of the biggest areas of confusion: What happens to your property's tax basis when you start renting it? If you bought your home years ago for $300,000 and it's now worth $1 million, can you depreciate the property based on its current value—or does the IRS look at something else? Eliot and Amanda break down how basis and depreciation work when converting a home to a rental and why understanding these rules can make a major difference in your tax strategy. They also cover selling a former rental after converting it into a primary residence, Section 121 capital gains exclusions, 1031 exchanges across state lines, installment sales, oil and gas deductions, business expenses, and IRMAA income thresholds. Whether you're a homeowner considering becoming a landlord or an experienced real estate investor looking for smarter ways to manage taxes, this episode covers important tax concepts to understand before making your next move. Would you like to learn more about passing down your estate? Schedule a free consultation here: https://aba.link/5b425e Register for the next Tax Tuesday webinar to get your questions answered Live: https://aba.link/rapa Register for an upcoming workshop today if you want to protect your business and personal assets from snoopy lawyers and creditors. Save Your Seat: https://aba.link/e4ab1e What You'll Learn What happens to your tax basis when you convert your home into a rental How depreciation works when a home's value has increased significantly Tax considerations when selling a rental that later became your primary residence How the Section 121 capital gains exclusion applies to converted rental properties Whether a 1031 exchange replacement property needs to stay in the same LLC How installment sale treatment works under IRC §453 Tax considerations for oil and gas working interest investments How to handle personal purchases accidentally charged to a business credit card When a new business is considered a legitimate business for tax purposes How income can affect IRMAA Medicare premiums Show Notes & Chapters 0:00 – Intro Eliot Thomas, Esq. and Amanda Wynalda, Esq. introduce today's Tax Tuesday and the listener tax questions they'll be answering. 9:24 – Oil & Gas Working Interest Tax Deductions How do first-year deductions for tangible and intangible drilling costs work with an oil and gas working interest, and does holding the investment through a disregarded LLC affect the tax treatment? 17:39 – Can a Lump-Sum Payment Qualify as an Installment Sale? Under IRC §453, can a property sale qualify for installment sale treatment when the transaction closes in one year but the seller receives the entire payment the following year without seller financing or a promissory note? 24:25 – Turning Your Home Into a Rental: What Happens to Your Tax Basis? A homeowner purchased a house for $300,000 approximately 20 years ago, but today the property is worth roughly $1 million. If the homeowner converts the property into a rental in 2026, what basis should be used for tax and depreciation purposes? 28:05 – Selling a Former Rental After Making It Your Primary Residence What happens when you convert a long-term rental property into your primary residence and later sell it? Eliot and Amanda discuss the potential capital gains consequences and how the Section 121 exclusion can come into play. 38:46 – Using an LLC for a 1031 Exchange Across State Lines If a Washington LLC sells California investment property and completes a 1031 exchange into an Alaska property, does the replacement property have to remain in the same LLC—or can the investor create a new entity? 46:04 – Does Your Business Have to Make a Profit to Be a Business? Can a newly launched consulting business still qualify as a legitimate business if it has generated very little revenue? Learn what business owners should understand about profitability and operating a new venture. 51:45 – Accidentally Using Your Business Credit Card for Personal Expenses What happens if you accidentally—or intentionally for the rewards points—put a personal purchase on your business credit card? Can your accountant simply exclude the purchase from deductible business expenses? 57:35 – IRMAA Income Limits & Social Security How does a higher adjusted gross income affect IRMAA for a married couple receiving Social Security? Eliot and Amanda discuss how income levels can influence Medicare-related costs. About Tax Tuesday Tax Tuesday helps real estate investors, business owners, and taxpayers better understand complex tax rules and strategies through real-world questions answered by Anderson Advisors professionals. In this episode, Eliot Thomas, Esq. and Amanda Wynalda, Esq. break down practical tax questions involving rental real estate, capital gains, 1031 exchanges, business deductions, investment strategies, and retirement-related tax considerations.
