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"If you owned and lived in the house for 24 months or more, you *must not* ignore the opportunity to sell it, tax-free, rather than renting it. If real estate is a good investment, buy your rental property with the proceeds of your *tax-free* sale of this house. If real estate isn't a good investment, put your money somewhere else."

Have you guys considered transaction costs in selling? On 160k in gains, a 20% cap gain would be 32k. A 6% commission on a 400k sale would be 24k. 7% would be 28k. If he has to throw in a couple of seller concessions he may avoid the tax but give almost the same amount to other parties.

If he never sells, he'll never pay any taxes. He could move back in at some time in the future and reclaim his exemption as well. There is a definite trend in Congress toward lowering cap gains taxes as well.

Don't let the tax tail wag the investment dog.
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