Primary Home: Owned for about 15 years and has appreciated it a lot. I have been renting part of the house on a long term/short term basis and have been showing all income on my tax return and have been taking depreciation on the part of the property as well as required by the law. In 2023, I got quite a few home improvements and maintenance work done on the primary home such as brand new solar panels (Jan 2023), a new large storage shed, attic insulation replacement, new attic fan, renovated garage, new epoxy flooring in the garage, new exterior paint etc.I am planning to claim 30% tax credit on my 2023 tax return.

Second Home: Purchased in all cash since financing was not available due to the condition of the house. It has a lot of potential, huge lot and amazing ocean views from a distance. Owned it for about 4 years and has been vacant since I bought it as it needs major rehab work. The original intent was to fix the house and rent it out until I am ready to retire in another 20 years or so. However, due to unavoidable circumstances, I have not been able to rehab it. In early 2022, I did cash out refinance on my primary home to come up with the money to fix this second home. I think I have enough money in reserve to fix this second home now.

Twist in the story, I got laid off recently which puts me in a bind. Since, I don’t have to worry about family situation; I am contemplating on renting out my primary home and moving to second home and starting rehab work on the second home.

Advantages:

1) Reduces my immediate liabilities even if there is a tad bit of negative cashflow.
2) Since I did significant amount of cash out refinance over a year ago, converting it into an investment property I should be able to take full deduction on the interest I would pay on the entire amount original loan plus the cash out refinance, correct me if my understanding is wrong.
Possibly, all the maintenance and improvement work I did in 2023 on primary home could be used as expenses to make the property ready for rental (unsure about this though)
3) If I never move back to the primary home and keep renting it for at least a couple of years or more and eventually sell it I could potentially do 1031 exchange and buy a couple of other properties somewhere else.
4) I can finally rehab the second home without having to worry about going out and finding another job first.

Questions:

1) What tax implications I should consider in converting primary home to investment property?
2) After rehabbing my second home, if I moved back to primary what kind of tax implications I should consider?
3) If I did convert my primary home to rental in 2024, can I still get tax credit for solar panels installed in early 2023?

In addition to making primary home to investment property I have a few other options:

1) Status-Quo, do nothing to second home, keep renting part of the primary home and look for employment.
2) Sell the second home and take out whatever minimal profit I could take.
3) Stay in primary home, rehab the second home while looking for a job. Once the second home is rehabbed, sell it for a little more profit.
4) Any other options you can think of?

San Jose, California

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