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Brother bought a house in ~1985 and lived there as primary residence until recently. Now has moved but is converting the property to a rental. As I understand, the cost basis is purchase price plus improvements, which is pretty low compared to market value today. Rent definitely covers what little the mortgage is and even with depreciation (on the cost basis) results in a very positive and i guess very taxable cash flow. I don't think increasing the mortgage by refinancing and pulling out equity helps unless the dollars go to improvements.

First - is this correct?

Second - what is the strategy to get the tax consequence reduced?

He is living with some one - not married. I thought possibly sell it to her? would that work?

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