Capture Tax Free Equity When Renting Previous Primary Residence

[Anthony Delgado]

Hello all,

We are considering turning our current residence into a rental when we move our family into a new home.

There is over 100k in equity in the property. We recently refinanced on a 15yr for 2.75% interest with an LTV of around 60%. Swapping a renter in it will comfortably cash flow a a couple hundred per month while we continue paying off the property over the 15yr mortgage. Ideally we keep the existing loan in our names and cover ourselves with extra insurance, both personal umbrella and on the rental itself.

My question is about how to capture the equity tax free. We would be able to claim about 80-100k tax free if we were to sell now as it is our primary residence. My understanding is that once we have a renter in the property for more than half of the calendar year we will no longer be able to do that.

Is there a way to pull the money out tax free, but then put it back in as a business investment so we can still enjoy the lower payment and cash flow? Sounds complicated, but someone with more experience might see an easy way to do this. I’d prefer to keep the current mortgage to avoid closing costs again but I don’t see how that can be avoided.

Thanks for any ideas!