I have a question about Publication 523 (https://www.irs.gov/publications/p523). In August 2021, I converted my primary house, which I purchased in 2014, into a rental property. Now, I've decided to sell it as I don't want to deal with tenants. This sale is eligible for capital gains tax exclusion since I lived in this house for more than 24 months within the past 5 years.
However, my real estate agent has presented me with an offer. Due to my low mortgage rate, the suggestion is to transfer the deed – which currently lists myself and my wife as owners – to an LLC and add him as a partner with 49% share ( he will pay for his portion). I've discussed this with my bank, and they are willing to permit the deed transfer while retaining the mortgage, under the condition that I control or own a majority of the interest in the LLC (50.1% or more).
My concern is whether, if we proceed with this transaction, my wife or I would still be eligible for the capital gains tax exclusion. I would greatly appreciate any advice you can provide.
