Why Turning Your Home into a Rental Makes Sense Now

If you locked in that low rate a few years ago, you have options. You can keep your home and rent it out, instead of swapping into a higher-rate loan and watching your cash flow get squeezed. Plenty of high-income pros — physicians especially — are thinking this way. You might be cash flow neutral at first, maybe a little negative after property management and maintenance, but the long-term picture can improve fast when you add tax benefits.

Here’s the playbook you’ll run:

• Expense deductions that kick in after you list for rent.
• Passive loss rules that can offset income in certain cases.
• Selling your home to your own S-corp to lock in capital gains exclusions.
• The 1031 exchange to defer gains and scale up.
• The 1152 plan, which is the combo move that lets you pull tax-free cash and defer the rest.

These are advanced, but you can handle advanced. Let’s start with a simple timing trick that can save you real money.

Hack 1: Time Your Expense Deductions for Maximum Savings

The key difference: personal vs. rental expenses

Timing matters. If you paint your home today while it is still your personal residence, that paint is just a personal expense. No deduction, no write-off, no love. If you first list the home for rent, then paint it, that same paint becomes a deductible expense. Same bucket of paint, very different tax outcome.

This applies to more than just paint. Think touch-ups, landscaping to make it tenant-ready, cleaning, and small repairs. Once the property is held for rental, those expenses can be deductible. Before that point, they are not.

Repairs vs. improvements: what counts and when

Not all costs are treated the same. Some items you deduct immediately, and some are depreciated over time.

• Repairs: Small fixes that keep things running, like an AC tune-up or patching drywall, are typically deductible in the year you pay them once the property is a rental.
• Improvements: Big upgrades, such as replacing the entire AC unit or installing all-new appliances, are usually capitalized and depreciated. You still get the benefit, just spread out.

This is why the timing is a big deal. If you plan upgrades, consider listing the property for rent first. That simple step can flip a personal out-of-pocket cost into a deductible expense.

Pro tip: delay expenses until rental status kicks in

A simple, three-step plan:

1. List the home for rent.
2. Make the updates after it is listed.
3. Save every receipt and note the purpose of each expense.

This small pause can turn a regular expense into tax savings. If you like your 3% rate and plan to keep the property, this move can get you off to a good start. Do it too early and you miss out. Do it at the right time, and you unlock a little gold mine.

Hack 2: Understand Passive Loss Rules to Offset Your Income

What passive losses are and why they matter

Year one often looks messy. You pay for updates, you may not have a tenant yet, and cash flow might be negative. That loss is called a passive loss. The tax code has special rules for how much of that loss you can use to offset your other income.

If your income is lower in a given year and you actively participate in the rental (approve tenants, set rents, basic involvement), you may be able to use those losses against your regular income, up to a limit.

The $25,000 deduction sweet spot

Here’s the quick rule of thumb:

• If your income is under $100,000, and you actively participate, you can deduct up to $25,000 of passive losses against ordinary income.
• Between $100,000 and $150,000, that benefit phases out.
• Above $150,000, you are phased out, and the losses typically carry forward to future years.

A quick view to keep it straight:

Income Level	Active Participation Required	Potential Use of Losses
Under $100,000	Yes	Up to $25,000 against ordinary income
$100,000 to $150,000	Yes	Phases out
Above $150,000	Yes	Carry forward, not lost

If you are a high earner and you are phased out, take a breath. You do not lose the losses. They can be carried forward and offset future rental income or gains. If you have a sabbatical coming, a lower-income year, or plan to sell a rental later, those carry-forwards can still help. It is not a dead end; it is a delayed benefit.

Some investors explore real estate professional status to unlock bigger offsets, but that is a different conversation with much higher hurdles. For now, know the thresholds and plan around your income year by year.

Hack 3: Sell Your Home to Your Own S-corp to Lock In Exclusions

The concept in plain English

This one is nerdy but powerful. You sell your primary home to an S-corp that you own. Yes, you are selling to yourself, but the transaction can allow you to use the primary residence exclusion on gains. You get to lock in the exclusion and keep control of the property inside the entity.

There are a lot of moving parts here. You want a seasoned accountant —and likely a real estate attorney —to structure it correctly.

The capital gains exclusion you are aiming for

Current rules let you exclude gains on the sale of your primary home up to:

• $250,000 if you are single
• $500,000 if you are married filing jointly

Simple examples:

• Single: Bought for $500,000, sold for $750,000; you can exclude the $250,000 gain.
• Married: Bought for $500,000, sold for $1,000,000; you can exclude $500,000.

Why would you sell to an S-corp you own? Maybe you are not ready to sell the home on the open market, but you want to lock in the exclusion. This approach can let you do that while keeping the property in a structure you control. Again, this is not a DIY Saturday project. Plan it, document it, and get help.

Hack 4: Defer Gains With a 1031 Exchange

What a 1031 exchange is and when you can use it

A 1031 exchange lets you sell a rental property and buy another rental property, and defer capital gains taxes. Think apples to apples. It is rental-to-rental, not primary-to-rental. You cannot use it for your primary residence.

Example: you bought it for $1,000,000, and it is now worth $4,000,000. You can sell it, buy another qualifying property, and defer $3,000,000 of gains. No taxes today, you push the bill into the future.

The growth play: move upstream over time

Here is how people build big portfolios. Improve the property, raise rents, increase value, then 1031 into a larger property. Repeat. You keep trading up. Over the years, some investors go from a single home to dozens, even 100 units. It is not overnight, but it is steady and strong.

Another bonus, if tax laws stay as they are, your heirs can receive a step-up in basis at death. That means you may defer taxes for decades, and your heirs might sell with little to no capital gains. You heard that right. That is why many investors are fans of this tool. You defer taxes indefinitely if you continue to follow the rules.

The landmines: strict timing and structure

The deadlines are serious:

• Identify your replacement property within 45 days of selling.
• Close on it within 180 days.

You can usually list up to three properties as potential replacements. A savvy move is to list a Delaware Statutory Trust (DST) as one of your options. If you run out of time or a deal falls apart, a DST can serve as a safety valve to complete the exchange. There are different ways DSTs can be structured, so you want to learn the details before you rely on it.

A quick checklist:

1. Keep it apples-to-apples, rental to rental.
2. Hit the 45 and 180-day deadlines.
3. Consider naming a DST as a backup option.

This can be a gold mine. Miss a deadline, and it can blow up your tax plan. Line up your team in advance so you are not scrambling.

Hack 5: Unlock Cash With the 1152 Plan, the 1031 + 121 Combo

How the combo works

The 1152 plan is a nickname for using two parts of the tax code together. You combine the 1031 exchange, which defers gains, with the 121 exclusion, which lets you exclude gains on a primary home up to $250,000 if single or $500,000 if married. The result lets you pull out tax-free cash using the exclusion, then 1031 the remaining gains into a new rental and defer the rest.

This shines when you have a highly appreciated property.

Example:

• You bought it for $1,000,000, and the property is now worth $4,000,000.
• You are married. You use the 121 exclusion to pull out $500,000 tax-free.
• You still have $2,500,000 of gains left.
• You roll that into a new rental using a 1031 exchange and defer those gains.

That is the 1152 in action: pull cash now, defer later.

How to think about it

It works best when your gains are well above the 121 exclusion. In hot markets, you might be there. Some owners are still within the exclusion amount, some are well past it. It depends on your zip code and timing. Either way, the rules from the 1031 still apply. You are working with the same 45- and 180-day requirements, and you must keep it apples-to-apples.

When set up properly, this approach lets you take money off the table without torching your tax bill, then keep compounding with the next property.

Quick Reference: When Each Hack Helps

Use this as a high-level guide while you map your plan:

• Timing expenses: You are about to make repairs or improvements, so list the property for rent first to turn costs into deductions.
• Passive loss rules: Your income might drop under $100,000 in a year, or you want to bank losses to use later.
• S-corp sale: You want to lock in the $250,000 or $500,000 exclusion, but you are not ready to sell to a third party.
• 1031 exchange: You want to scale up without paying capital gains now, and you can meet strict deadlines.
• 1152 plan: You have large gains and want to take tax-free cash via the 121 exclusion, then 1031 the rest.

Wrapping Up: Turn Landmines Into Gold Mines

You just walked through five big tools: timing expenses, passive loss rules, selling to your S-corp, the 1031 exchange, and the 1152 combo. Each one can boost cash flow and shrink taxes. The key is picking the right tool for your situation and following the rules closely. With a smart plan, you turn a low-rate home into a steady asset and a serious tax advantage.

Ready to map your next move? Start with the timing of expenses, then sketch out which of the other four fits your goals. Keep your receipts, know your deadlines, and keep your options open.