To sell or to rent (the primary residence)?

[ctac]

Hello,

I am new here and I know there was a similar thread, but it hasn't been read in a year and my facts are different. So I am posting a new one, please forgive me.

Facts:
I have a 2 bedroom co-op in Brooklyn, NY, which I bought almost a decade ago in horrible condition and put blood, sweat, and tears into renovating. 3 years ago I got a slightly better job (AND got tired of the almost 1.5 hour each way commute) so I decided to try living in Manhattan. The place is smaller and not as renovated, but I like it (as I do like living in Manhattan, let alone the 4 min commute) so I don't plan on moving back to Brooklyn anytime soon (or possibly ever). When I rented it out, I thought I'd move back after 3 years or so (the no-cap gain rule), but it does not look like it anymore. Furthermore, I've been losing only around $100/month on the rental (rental income less mortgage&maintenance) so it has not been an issue.

Question:
Now my co-op board changed the rules/fees/etc AND 3 years are gone, so I am back to the dilemma. First, I have to raise the rent and the search has been unproductive. Second, if I rerent I am losing the cap gain exemption cause it'll be more than 3 years out of principal residence. My gain wont be much really as Brooklyn is not very volatile and it neither dropped during the crisis nor appreciated much in the 10 years (if I include all my capital improvements). At this point I guess its more of 1. a sentimental value (it was and is the first home I own) 2. appeal of someone paying for (most of) mortgage/maintenance on a property I own. What do I do?

Thank you

Stan

[Future Lazy]

Sell that sucker. It's no good to you if you're losing money on the rent. Even if you don't make much over your original purchase price, you are getting to keep an extra $100/mo you don't have to dump into it, plus all the expense of having it sit vacant ever, having to drive back and forth to manage the property, etc.

[COlady]

CPA here, the IRS Regs. changed a few years back.  If you have any non-qualified use (i.e. rental period) than you're supposed to prorate the gain between qualified (principal residence) and unqualified (rental use) use.  The qualified portion of the gain would be considered non-taxable.  Of course, there are a bunch of people that don't report this stuff correctly. This used to be a great tax planning strategy but not as great anymore.  Maybe see a CPA (or see if you can figure it out yourself) and see what kind of taxable gain you'd be looking at if you did sell.

[COlady]

Here's a great article that explains the issue.  I guess it was more than a few years ago, it was more like 5 years ago that the regs. changed.

http://www.moneyradio.org/www/pdf/3092.pdf