Tax on home versus rental

[Josef Torkelsen]

Appreciate if someone can help give guidance on our situation. We will seek CPA guidance before we actually commit. 

We currently own a single family home in Orange County. It is too big for our needs and we are on with moving into a smaller and much cheaper rental to save us about a thousand a month. Are the tax benefits for living in our primary residence similar to the tax benefits of using it as a rental? Id hate to save money on moving into the rental just to hurt us on the tax side. 

[Brandon Hall]

@Josef Torkelsen It's difficult to discern exactly what you are meaning (i.e. are you selling your primary residence then moving into a rental or renting your primary residence then moving into a rental?). 

If you convert your primary residence, tax benefits will likely increase, but your investment will perform poorly if you are only in it for the tax benefits. A smarter question would have been: "I'm considering moving out of my primary residence, I have X amount of equity in the house, I can rent it for X amount, and I'll be moving into a rental myself for X amount, is this a good idea?"

Regardless, if you convert your primary to a rental, devise an exit strategy if your primary residence has seen a large amount of appreciation. If you sell within the next three years, you can shelter the gains and avoid paying taxes on it.