Primary Home Keep as rental or Sell to avoid future tax

5 Replies

Hello 

I will be purchasing new primary home and keep my current primary home as rental or not due to the tax benefit.

Home location: East Bay, CA

Capital Gain: around $200,000 (Purchased 2018 and lived 3 yrs as primary home)

My original plan was once I purchase new home, I was going to keep it as rental. But once I learned capital gain exclusion rules ( up to $500,000 of that gain if you file a joint return with your spouse), I am confusing if I need to sell so I still get some tax benefits now or keep as it rental for 2-3yrs (can sell within 3yrs to meet the capital gain exclusion rules) or even hold even longer (pay long term gain tax in this case.)

I want to invest another investment property using 30yr fixed loan even if I sell now and I am kind of confuse what will be best direction here.

Can anyone advice if you have any insight?

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Ever thought about the best of both worlds? Do a cash out refi and use those funds to buy in a state where there is more cashflow.............AND keep the property to use as a rental.

Or...........Sell and do a 1031 Exchange into a multifamily in another state that gets you more cashflow.

@Kevin Kim , If it will be a screaming rental then keep it.  If you sell while you have still lived in it for 2 out of the 5 years prior to selling you'll still get the exemption (you will have to recapture depreciation).  

But selling in a couple of years also runs a risk for the market to turn and you'll be taking new  financing at a time when the costs of finance might be more inflationary.

It's a calculated risk.  But the analysis starts with the quality of that property as a rental.  If it looks good long term then it might be a good move to hang on.

I usually lean toward taking money tax free when I can.

Thanks All for advice. The area is 1HR from SF/Bay area without traffic (with traffic up to 2hrs) and has excellent school. So renting out is not an issue I believe. I think I had to make decision but I lean toward to hold for long term (The rent will pay mortgage + escrow but not much positive cash flow as of now), and the home is quite new so i think i can hold for long term.

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