[pamela5100]

I have a personal residence that is vacant. I moved out 2 1/2 years ago, renting another property. I understand that if I do not sell my property within 3 years,(having lived in the property for 2 of the last 5 years) I will not be able to take the capital gain exclusion. If I decide to rent the property for a few years and then sell it, will the basis of my property be the fair market value when I converted the property to a rental property?

My basis is approximately $100,000. It is worth about $500,000. I am married, so I know I am entitled to an exclusion of up to $500,000.

If I sell it in a few years and the basis remains at $100,000, can I legally sell the property to an LLC that I control or transfer it to a Trust, so that my basis will be increased to today's Fair Market Value?

[ebaines]

No one has taken a stab at this, so let me try.

The basis for the property would not step up to today's fair market of you start renting it out. In fact, if you take depreciation on the property as a rental business your basis will decrease over time.

As for the LLC question, please clarify - are you are asking whether you could sell the property now to an LLC, which would then be in the business of renting the property out for the next few years is that right? This may be possible, but I am not qualified to answer that question. My guess is that the LLC would have to be an arms-length entity for this to be legit - i.e. would require a separate source of funds to buy the property from you at today's fair market value, or perhaps the LLC would borrow the money from you (seller-financed loan) at fair market interest rates and repay you over time? Sounds like a complicated mess, but perhaps a lawyer familiar with partnerships or limited liability companies could help you with this.

[AtlantaTaxExpert]

The basis would be the fair market value at the time of conversion, or whatever you paid for it plus improvements, whichever is LESS.

Agree with Ebaines on the LLC question.