This exemption can substantially reduce or even eliminate your capital gains tax obligation, depending on the profit you realize from the sale.

To qualify for the exemption it needs to be a “personal” residence.

Transfer taxes - encumbered property transferred into a land trust is exempt from doc stamps. 

Update:First, thanks for the all the replies.Second, the bank confirmed my SFR rental mortgage is in fact categorized as Commercial.Third, they said that since I don't have a total mortgage balance of over 250k with them, I'll be exempt from the extra paperwork hassle.

And taking the $250K does reduce your reinvestment requirements for the 1031 by $250K.But the 121 exemption isn't "carried forward" any further than the 5 year look back.

The other problem with putting your personal home in an LLC is that you will probably lose your homestead exemption, and end up paying more in property taxes.

Thanks for your time.you will need to see if they received a special exemption or permit to run it as a duplex.

If that is what they are telling you, then I would research it further, it necessarily may not need to be torn down but it may not be able to be used for residential use, but typically you can also get special exemptions/permits too

Once I hit the $12M exemption then I would move stuff over to an irrevocable trust. 

Now I do want to throw what my guess is out there, which is since he sold the property last year he is now buying into the LLC which owns the property, he cannot take his old basis or use this type of exemption.