If you have appreciation, and you have lived in your house at least two of the last five years, you can sell the house and get a tax free gain. If you convert your house into a rental unit and you no longer have lived in your house two of the last five years, when you sell it all that tax free gain is gone.

A good friend was going to do exactly that. Buy a new house and keep his old house. I told him what he was going to lose and to not do it and if he didn’t believe me to call his tax accountant. He didn’t believe me, but at least he called his tax accountant, so I probably saved him six figures. Still feels good, even if I didn’t get any of the credit.