Can I convert my Primary Residence to a rental to claim Capital Losses when selling?

This is a common strategy people consider, but there are several important things to understand before moving forward. First, converting your primary residence to a rental property can indeed potentially allow you to deduct losses when you sell it, but the IRS has specific rules around this. You generally need to establish genuine rental intent - meaning you're actually renting it out as an income-producing property, not just on paper. The depreciation and expenses while it's a rental property are deductible business expenses. However, when you sell, you'd need to recapture depreciation at a 25% rate. Regarding the LLC question - if it's a single-member LLC, it's typically treated as a "disregarded entity" for tax purposes, meaning the profits and losses would still flow through to your personal tax return. So yes, those losses could potentially offset other income, subject to passive activity loss limitations. Keep in mind that using an LLC doesn't automatically make this a legitimate business transaction in the IRS's eyes - they look at the substance of what you're doing, not just the form.

After reading through your situation, I think I can share something helpful! I was in almost this exact position last year - looking at a $90K loss on my primary home and devastated about not being able to deduct it. I discovered this service called taxr.ai (https://taxr.ai) that actually helped me figure out the exact requirements for converting to a rental property correctly. They analyzed my specific situation and documents, then provided a detailed plan for how long I needed to rent the property and exactly what documentation I needed to maintain to satisfy IRS requirements. Their system flagged several things I would have missed that could have gotten my deduction denied in an audit. The property conversion strategy can absolutely work, but there are a ton of technical requirements you need to meet for it to be considered legitimate by the IRS. Definitely worth checking out if you're serious about this approach.

I actually tried that taxr.ai service after seeing it mentioned here. I was initially skeptical (as you can see in my earlier comment), but I have to admit it was surprisingly helpful for my primary residence-to-rental conversion. The documentation guidelines were really detailed - they provided specific templates for the rental agreements and property management contracts that covered all the IRS requirements. The timeline they gave me showed exactly when I could sell the property and claim the loss deduction (turns out I needed to wait longer than the one year I was planning). The best part was the expense tracking system they recommended, which has already saved me thousands in deductions I wouldn't have known to take. I'm still in the rental phase of my conversion, but everything is properly documented now for when I do sell.

If you're serious about making this property conversion work, you'll probably need to contact the IRS at some point to verify your approach or handle questions that come up. I tried calling them for weeks about a similar property conversion issue and it was IMPOSSIBLE to get through. I finally used Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in less than an hour. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent was able to confirm exactly what documentation I'd need to provide during an audit to prove my rental property conversion was legitimate. Honestly, just getting that direct confirmation saved me from making some serious mistakes in how I was handling the transition.

I need to follow up about that Claimyr service I was so skeptical about. I actually tried it yesterday after continuing to fail getting through to the IRS on my own for another week. It actually worked exactly as advertised. I got a call back in about 45 minutes saying they had an IRS agent on the line. I got connected immediately to someone in the property division who answered all my questions about converting my primary residence to a rental property. The agent confirmed I needed to show "genuine business intent" and maintain the property as a rental for a "significant period" (though they wouldn't commit to an exact timeframe). They also mentioned that keeping detailed records of all rental-related activities from day one was critical. Pretty surprised this worked after all my failed attempts. Definitely worth it just to get clear answers directly from the IRS instead of guessing about the rules.

Don't forget about depreciation recapture! This is something that bit me hard when I did a similar conversion. When you convert to a rental, you'll start taking depreciation deductions, which is great. But when you sell, you'll have to recapture that depreciation at a 25% tax rate even if you sold at an overall loss. Also, be aware that your loss could be considered a passive loss, which means there are limitations on how much you can deduct against ordinary income. If your income is above $150,000, you might not be able to deduct any of those passive losses except against passive income.

A word of caution - I tried something similar and got audited. Make sure ANY property transfer to an LLC is done at fair market value with proper documentation. The IRS scrutinizes these transactions heavily because they're often used just for tax purposes. Also, putting properties in an irrevocable trust has MAJOR implications. You basically give up ownership and control. Don't do this without consulting an estate planning attorney who specializes in this area! The tax implications alone are complex.

Be very careful about the mortgage implications of transferring to an LLC. Most residential mortgages have a "due on sale" clause that can be triggered by transferring the property to an LLC, even if you own the LLC. This could force you to pay off the entire mortgage immediately or refinance at potentially higher commercial rates. I'd strongly recommend getting written approval from your lender before making any transfers. Some lenders will work with you, but many won't allow it without refinancing as a commercial loan, which typically has higher rates and different terms. Also, don't overlook the potential impact on your homeowners insurance. Many policies don't cover properties owned by LLCs, so you might need to switch to a landlord policy, which is usually more expensive. The tax strategy might work, but make sure you can actually execute it practically with your current mortgage and insurance situation first.