House Hacking Rent by Room Taxes and Selling House

Member since 2020 · 2 posts · 2 votes

Hello,

Long story short I bought a home 16 months ago and have rented it out by room. I have only had maybe 3 months where I was profiting above my mortgage at 350 dollars. The rest of the time has mostly been breaking even on the mortgage costs. I am also thinking of selling this home because I will no longer be living there soon and I want to focus on my family. What are the taxes going to be like on the income and is selling this going to be a nightmare?

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Charles Carillo

Rental Property Investor · North Palm Beach, FL · Member since 2018 · 2k+ posts · 1k+ votes

@Chris Miller

I feel house hacking is about covering most of your expenses, building equity, and becoming a landlord with a small down payment. I have house hacked multiple properties before and they never really created positive monthly cashflow (with me living there). It usually ended with me breaking even or having to contribute $50-$150 for the month. On the flip side, I was paying down my mortgage by ~$400 a month and I did not have to pay rent.

Selling a property with roommates living there is going to be a potential hurdle. Most buyers do not want roommates living at the property and you most likely will maximize your sale price by selling it vacant.

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Charles Carillo
Rental Property Investor · North Palm Beach, FL · Member since 2018 · 2k+ posts · 1k+ votes
3y
@Chris Miller
I feel house hacking is about covering most of your expenses, building equity, and becoming a landlord with a small down payment. I have house hacked multiple properties before and they never really created positive monthly cashflow (with me living there). It usually ended with me breaking even or having to contribute $50-$150 for the month. On the flip side, I was paying down my mortgage by ~$400 a month and I did not have to pay rent.
Selling a property with roommates living there is going to be a potential hurdle. Most buyers do not want roommates living at the property and you most likely will maximize your sale price by selling it vacant.
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Paul De Luca
Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
3y
Quote from @Chris Miller:

Hello,
Long story short I bought a home 16 months ago and have rented it out by room. I have only had maybe 3 months where I was profiting above my mortgage at 350 dollars. The rest of the time has mostly been breaking even on the mortgage costs. I am also thinking of selling this home because I will no longer be living there soon and I want to focus on my family. What are the taxes going to be like on the income and is selling this going to be a nightmare?

Regarding the taxes you should talk to a CPA and if you're interested in selling you should talk to an agent to get a home evaluation & net sheet. But after just 16 months and considering selling expenses, I would expect you to net very little from the sale if anything.
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Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
3y
Welcome!
You haven't given enough information to get specific answers, and as always, you could chat with your CPA. If you are talking about income on your rents- you'll pay taxes on that income, but it SHOULD be offset by your depreciaton and liabilities.
If you are talking capital gains if you sell, it really depends on how long you lived there- from what you've shared, you haven't owned it or lived there long enough to claim it as your primary, so you'd likekly pay ordinary income taxes on the profits.
Best of luck-
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
3y
Quote from @Chris Miller:

Hello,
Long story short I bought a home 16 months ago and have rented it out by room. I have only had maybe 3 months where I was profiting above my mortgage at 350 dollars. The rest of the time has mostly been breaking even on the mortgage costs. I am also thinking of selling this home because I will no longer be living there soon and I want to focus on my family. What are the taxes going to be like on the income and is selling this going to be a nightmare?

If you sell after 24 months, you will not pay any capital gain up to 500k. You only have to pay taxes on your depreciation recapture.
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Talk to your CPA, hopefully you had a plan in place with depreciation. Welcome to single family.
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Lawrence Potts
Real Estate Agent · Member since 2018 · 459 posts · 414 votes
3y
Quote from @Chris Miller:

Hello,
Long story short I bought a home 16 months ago and have rented it out by room. I have only had maybe 3 months where I was profiting above my mortgage at 350 dollars. The rest of the time has mostly been breaking even on the mortgage costs. I am also thinking of selling this home because I will no longer be living there soon and I want to focus on my family. What are the taxes going to be like on the income and is selling this going to be a nightmare?
1. Tax implications will vary. All income needs to be reported and you should show reports of income coming in through a property management software to help (apartments.com, etc.). If you are not using a software that can give you a report, talk to your CPA. They will also help you go over your depreciation rate, write offs, etc.

2. Chances are you will need to empty the house if you are to sell. As mentioned earlier, selling with tenants in place renting by the room may be difficult (depending on your market; if you’re in Portland, Seattle, San Francisco, this may be more common). Are your tenants on leases? You may consider keeping and renting out to midterm by the room. Just stage the home, replace the door knobs with keypad locks so each room is protected and they have their own codes, mini fridge, Wi-Fi, tv, etc., and go that route?

Hope that helps!
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
3y
@Chris Miller why did you buy this property and rent-by-the-room to begin with?
Almost sounds like you bought it and expected to be an instant millionaire and now that it actually turned into work, you're bailing.
What went wrong?
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Dennis Nguyen
Real Estate Agent · Seattle, WA · Member since 2017 · 150 posts · 80 votes
3y
Definitely talk to a CPA / Accountant but I believe if you stay for at least 2 years you will not have to pay taxes on the sale of your property because it was owner occupied. Might be worth it to wait a little bit longer before you sell.
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Jack Gray
Rental Property Investor · Charlottesville, VA · Member since 2014 · 44 posts · 12 votes
3y
Hi Chris, this is one of those times where you will save money speaking to an accountant before you take any action.
Don't underestimate the long-term wealth-building power of having the tenants pay your mortgage, even if you're not cash flowing much. You may wish to consider moving out, keeping the property, and converting to one long-term tenant for ease of management.
As others have said, as long as you live in the house for 2 of the previous 5 years, you will not have any capital gains tax to pay...although with only 16 months of ownership, any gains you have will likely be wiped by realtor commissions and other selling expenses.
PM me for the name of my CPA. He's saved me quite a bit on taxes over the years and understands real estate transactions and the investing side of things very well, and can help you build a strategy for your situation.
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