How soon can I move into a rental after I buy to make it my home?

[Janell Rasper]

If I purchase a home as a rental property (just a standard purchase with my LLC, using proceeds/cash from another rental property sale, but not using an actual 1031 exchange), and almost immediately move into it and claim it as homestead, is this allowed? I have a problem with a new rental home, that because of Covid, I have been unable to rent it. I do not want to leave it vacant, so I want to move into it. If I do this, do I trigger any tax implications? Since the funds came from a rental sale? Accountants anyone?

Or - does the 5 year rule apply here? That as long as I live in the home for at least 5 or more years, claiming it as my homestead, that even though the funds came from a 'sold' rental property, it would be allowed? I live in WI if that matters....

Thanks for any help!! Stay safe, Janell

[Jaysen Medhurst]

@Janell Rasper, the sale of your investment property is the "taxable event." So, you'll owe CG taxes on that, no matter how you choose to use the funds.

If you're planning to make it your primary, why buy it with your LLC? Use the favorable terms offered by an owner-occupied conventional mortgage. After a year you can always move out and keep it a pure rental.

I think the 5-year rule you're referring to is regarding CG tax exemption, right? My understanding is that if you live there for at least 2 of the previous 5 years, you can claim the exemption.