Head Spinning! Should I sell or rent my former primary home?

Question

I have been reading tons of these blog posts and I feel like I'm more confused and I'm thinking it might be because the market has changed so drastically in the last two years.  What I'm trying to figure out is as follows:

I paid $550k for my primary 5 years ago.  It's worth $950k now (per recent neighborhood stats).  I live 1/2 mile from the beach in Florida - market is booming since covid for ST rental, LT rental and sale.

I'm stuck on whether to sell or do a 1 year lease for $5k/month.  If I sell, as a single taxpayer, I will pay capital gains tax on $250k.  If I rent for a year, I can net $1,500/month. The mortgage + expenses are $3,500/month including a home warranty that covers all appliances and HVAC.

I've been renting it ST for the past 6 months.  I really really hate to pay capital gains tax. I'd like to buy another (less expensive) property with the proceeds, but I'm not looking to reinvest all proceeds right away.

What process do y'all go through to analyze the rent/sell scenario? Thank you!!

Bruce Woodruff · Answer

If you pay at the most likely 15% CG rate, you're giving $37,500 to the Gov't. That would be a big ouch for me. What about Refi'ing it and buy another local property?

Basically, you can give Uncle Sam $37,500, or you can make $18,000 a year, year after year. Just my .02

Shelley Rubino · Answer

Thank you all so much!

Donald Dooley · Answer

@Shelley Rubino

This property was purchased as your primary residence? I’d sell it. The market is prime to sell and then you could always flip your profit to purchase other properties or alternate investments.

Mike Dymski · Answer

Sell it.  You don't have to pay tax on the first $250k of gain and the remaining $150k gain will be at reasonable capital gains tax rates.  If you prefer to keep it...just sell it and buy a similar house in the same area so you don't loose the capital gain exclusion on the sale of a primary residence (and you get the higher basis in the new property to depreciate).

Thomas Hanks · Answer

Hi Shelley Rubino,

Here are some of the thing I go through when looking at money?

Do I need cash for another deal or something important to me right now? For me this was a yes and I did a money out refinance.

How much money flexibility do I want?

How much time do I want or have to spend on monthly income from the property? To decide if I want to STR or LTR the property.

For me minimizing my tax burden would be on the bottom of the list. But I wouldn't have that tax bill.

Head Spinning! Should I sell or rent my former primary home?

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