Capital Gains after converting a Primary Residence to a Rental

[Cory Bousfield]

I am wanting to make sure I understand this situation properly. Greatly appreciate the replies!

During my home ownership, I have seen significant gains over 8 years. Lets say I want to purchase a new home to live in and convert my old residence to a rental instead of selling it. If I keep the rental for over 3 years to no longer qualify for the home owner's exemption (live in it at least 2 of the last 5 years) and sell it on year 4, is the following table correct?

I was thinking the capital gains was the difference between the sale price and my FMV at conversion, less depreciation and not the original cost. However, after some additional research I saw this table calculation and realized this could be a huge mistake for a medium to long term investment because of the gains during the time it was my primary residence...

In this case if it would make much more sense to sell the house before 3 years of being a rental (to still qualify for the home owner's exemption and not pay any capital gains). Selling it any time after 3 years of converting it to a rental would create a huge capital gains burden. If this is the case I'm much better off selling my house and using the cash proceeds to just buy a rental instead of converting the old house to a rental? 

1	Original Cost	$180,000
2	FMV at conversion	$340,000
3	Depreciation taken	$30,000
4	Adjusted bases if sold at gain (#1 - #3)	$150,000
5	Adjusted basis if sold at a loss (lesser of #1 - #3 or #2 - #3)	$190,000
6	Sale Price	$400,000
7	Capital gain (#6 - #4)	$250,000