16 Jun How do I change my vacation home to my primary residence?

Q. I want to switch and make my vacation home my permanent home, and then rent out what is now my permanent home. The mortgage rate on the one I would rent out is really low, so I’m thinking it makes sense to keep it instead of sell it. I don’t think I would ever live there full time again. The vacation home is almost paid off. What should I think about when I make this decision?
— Changes ahead

A. There are several things to keep in mind here.

Let’s start with taxes.

The biggest concern is if you rent the primary home and you have had a large increase in value. If in the future you decide to sell, you will lose the favorable capital gain status, said Jody D’Agostini, a certified financial planner with The Falcon Financial Group in Morristown.

“This allows you to exclude up to $250,000 for a single filer or $500,000 for a married couple of increase in value before any capital gain tax would be due,” she said. “If you wait too long to sell, you will lose this capital gain exclusion.”

To qualify for the exclusion, you must meet both the ownership test and the use test.

For the exclusion if you have owned and used your home as your main home for two years out of the five years prior to the date of the sale.

On the positive end, once you convert the primary home to a rental, the rent is taxable to you, but you can deduct expenses to support the home such as mortgage interest, repairs, property taxes and insurance costs, she said. Also, you can depreciate the property, which can help at tax time.

When your home becomes a rental, you will need landlord insurance, D’Agostini said.

“You should reassess your coverage for liability and umbrella coverage to account for others that will be living there,” she said.

Also, you might also lose any property tax benefits — such as ANCHOR, Stay NJ and the Senior Freeze — extended to a primary home.

You did not say where your vacation home is. D’Agostini said you should check to see if you are moving to a tax-friendly state, which could include state taxation on retirement income.

When deciding where to live, access to good health care is important, D’Agostini said. Also, access to support systems including family might matter more as you age. Which home is more accessible as you age? Is there a first floor living arrangement in either home so that later in life you could avoid stairs?

She said you should run the numbers to see how this affects your overall financial plan, so consider going to a financial advisor who can review your specific situation.

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This story was originally published in June 2026. 

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.