Previous primary residence rental. Renovations and taxes

[Andy Nanneman]

I have a paid off home I have lived in since 2011. I recently moved to another residence. I would like to turn the older home into a rental property (if the numbers make sense). It is in an area that is experiencing considerable development, and I believe the home will be worth more in the 5-10 years. However, it is an older home (~120) and needs some renovations. So here are the factors I am considering. Please let me know if I am making an error or missing an important factor.

• Capital Gains Exemption: must have lived in the house for 2 of the last 5 years. So if I sell by 9/22 I can avoid capital gains. If the tax savings is considerable relative to the annual rent income and appreciation rate it would make more sense to try and fix the house up a bit and sell.

• Renovations prior to rent. Before the house is ready for the rental market it likely needs some renovations. If these get expensive I understand you can depreciate it over the years of renting. However, would that void the possibility of the capital gains exemption for primary residence?

• Repairs can be deducted from the annual tax year. So if I spend x thousands making repairs I can avoid paying taxes on x thousands of rental income. That means rushing to make repairs and getting a tenant in for November or December might not be worth the rush. Can I spend money now and deduct the expenses from the 2020 tax year? Or do I need to wait until after January 1?