Converting Your Principal Residence Into A Rental Property (Or Vice Versa)?

At first glance, renting out a home seems to have simple tax consequences; if you made positive income, you should pay tax on it. However, if you originally lived in your home and then decided to rent it out, there may be tax complications. Transitioning from personal use to income-producing use of the home triggers tax consequences (known in the tax world as a "change in use"). The change in use deems a "sale" of your property for its fair value at that time and reacquisition of the property at that same value, which means you may have to pay tax on the property's appreciation in value (known as a "capital gain"). Generally, the capital gain is calculated as the fair value of the property at that time less the original cost.