The Money Mustache Community

Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: SmartMoney on April 08, 2018, 12:25:59 PM

Title: To Sell or Lease? What is the Smarter Tax Move?
Post by: SmartMoney on April 08, 2018, 12:25:59 PM
Mustachians,

My husband and I are relocating to California from Texas and have already decided to rent while we get settled.  We were planning on selling our house, but now wonder if the potential tax deductions of a rental property would be advantageous given the new tax laws.  What would you do?

Details:
Pre-tax combined income of $375K
Home purchased in 2013 for 280K, could sell for 425K today
Could rent home for ~$2250/month
Operating cost of mortgage+insurance+property tax = ~$2000/month
Owe 155K on mortgage
Max out HSA & 401K annually
No other properties/businesses
Married couple in 30s, no kids

Should we sell now, taking advantage of the hot market and no capital gains tax?  Or should we rent the house out, as a couple or considering forming an LLC?  With the new tax law, we are pessimistic about our tax liability next year.

SmartMoney
Title: Re: To Sell or Lease? What is the Smarter Tax Move?
Post by: ShoulderThingThatGoesUp on April 09, 2018, 10:39:27 AM
Rent is $2250/month and costs without vacancy or major repairs are $2000/month?

So optimistically your $270,000 in equity would be earning you 12*250/270000 = 1% a year.

Sell.
Title: Re: To Sell or Lease? What is the Smarter Tax Move?
Post by: Cwadda on April 09, 2018, 10:40:48 AM
Mustachians,

My husband and I are relocating to California from Texas and have already decided to rent while we get settled.  We were planning on selling our house, but now wonder if the potential tax deductions of a rental property would be advantageous given the new tax laws.  What would you do?

Details:
Pre-tax combined income of $375K
Home purchased in 2013 for 280K, could sell for 425K today
Could rent home for ~$2250/month
Operating cost of mortgage+insurance+property tax = ~$2000/month
Owe 155K on mortgage
Max out HSA & 401K annually
No other properties/businesses
Married couple in 30s, no kids

Should we sell now, taking advantage of the hot market and no capital gains tax?  Or should we rent the house out, as a couple or considering forming an LLC?  With the new tax law, we are pessimistic about our tax liability next year.

SmartMoney

Another vote for selling. It's a no brainer. You could also try doing FSBO to save money.
Title: Re: To Sell or Lease? What is the Smarter Tax Move?
Post by: Another Reader on April 13, 2018, 06:52:26 PM
Look up the 1 percent and 50 percent rules.  You will be cash flow negative on the property and have to feed that alligator.  In your shoes, I would sell.
Title: Re: To Sell or Lease? What is the Smarter Tax Move?
Post by: waltworks on April 14, 2018, 09:11:46 AM
At your income level, even if this place rented for double that, it would be mostly an annoyance. For god's sake, just sell it.

-W
Title: Re: To Sell or Lease? What is the Smarter Tax Move?
Post by: SmartMoney on April 14, 2018, 05:04:04 PM
Thanks all - for sale it is.