Homeowners who relocate or move up to another home often wonder whether to sell or to rent the old one. Here are 2 questions to ask:
I. Do you making money if you sell your home?
First thing you need to consider is whether you are making profit from the selling of your home or not. If you are making profit, you may need to look into the tax aspect.
If you live in the same house for the past 5 years, each spouse can claim up to $250,000 profit tax free or $500,000 for both of you. For each year the house is rented, you will be losing 20% of the tax exemption.
If the house is rented for 5 years, you will lose all your tax benefit and need to pay about $10K federal income tax for $100K profit. Please consult your tax advisor for your individual financial situation.
II. Do you make money as a landlord?
Landlord is simply a business. Does your rental income pay for all expanses including mortgage payment, property tax, HOA, insurance, vacancies, and maintenance cost?
If not, can you afford to subsidize the lost every month? Whether you want to keep the house for sentimental reason or not, this is a very realistic and practical question to ask. In order to stay in business long term, you need to run a profitable one.
Before making decision on whether to sell or to rent, it is very important to factor all the considerations into the equation to ensure that your decision is for the best of your financial well being.
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