Short Video Below and the Transcript here:
There are 5 major considerations when you decide to sell or rent your 1 family and primary residence in Queens, NY:
- Tax implications
- Absentee landlord management implications
- Selling a house in the future that is rented vs. a homeowner occupied house.
- Opportunity Costs
- Personal Reasons.
The number one consideration is that there are capital gains tax implications. You know this is an important part of the equation. We are not tax accountants. You have to talk to your tax advisor. But we do have knowledge of the basics of capital gains and there are some implications that you should consider before deciding if you should rent your home or you should sell it.
At a basic level, and again you should consult uh with your tax advisor but at a very basic level when you sell a one family home where you have used it as a personal residence for any two of the last five years you are entitled to a capital gains tax exemption in the amount of $500,000 if the house is owned by a couple or an exemption of $250,000 if the house is owned by one individual.
This is a substantial exemption that can provide a lot of savings in your tax bill when you sell your primary residence. Again, when you have been living in the house any two (full 2 years) of the last five years you are going to be entitled to this exemption.
That means that if you decide to rent it and you rent it for three years and one day, you have done away with that exception. You wouldn’t qualify for that exemption because you haven’t occupied the home as a personal residence for any two whole two years out of the last five. Again, let this think in for a moment: if you do decide to rent it and you rent it for three years plus then you don’t you are not entitled to this exemption. So this can make renting the home not financially advantageous, meaning renting your home for over 3 years may make no economic sense because the amount of rent that you would collect or rather, the amount of profit from the rental may not even be equal to the tax bills you are going to have to pay later when you sell it.
We can talk about this more in detail in your particular case. You know that capital gains taxes are another whole subject by themselves and that you should speak to your tax advisor but in conclusion, at a very basic level, remember that there are capital gains implications when you decide to rent your primary residence and that the rental income may not compensate you for the capital gains taxes you may have to pay after you sell it because you will have lost the primary residence capital gains tax exemption.