In your case, changing the property from a rental to your primary residence constitutes a change in use.The depreciation recapture will be calculated based on the fair market value of the building at the time of conversion, not including the land value.Since you're tearing down the existing structure, the entire amount of depreciation taken over the past two years will likely be recaptured, as the building's value at conversion will effectively be zero.The recaptured amount will be taxed as ordinary income, up to a maximum rate of 25% for residential rental property (Section 1250 property).

I would like to build several (2 - 6) "shipping container" type homes for either short, mid or long term rental.

Quote from @Scott Mac: Safety - Inherit a fully paid for SFH, in decent condition, in the neighborhood you live in, and rent it out to long term tenants who you are comfortable with.

Knowingly buying into the red just because of financing terms is a very unhealthy way to invest.

Purchase price: $160,000 Cash invested: $35,000 Another 1% single family deal in a transitional area creating long term wealth

Feel free to reach out if you have any questions.The Short- Term Rental Loophole ExplainedThe Short- Term Rental Loophole Explained

If the market continues to appreciate, holding the property could yield more long-term equity gains.

While some reductions might increase short-term costs for investors, a more balanced budget could stabilize inflation and interest rates over time.

I've helped 6-7 different investors move money from Oregon to Wyoming in the last 15 years and they are all happy they made the move.Consider finding a market that has a better long-term outlook, economically and legally.

These types of properties require experienced management to navigate the challenges effectively.