If you have decided to purchase a second home while mortgage rates and home prices remain near record lows, you may be wondering if you should rent out your current home or list if for sale. Here, SmartMoney offers some advice on the pros and cons of both options.
Understanding tax advantages
If you are considering selling your home and you have lived in it for at least two of the last five years, you will likely qualify for a large tax break. By renting your home, you would qualify for similar tax breaks, but if you sell more than three years after receiving the breaks, the gain would be taxed.
While sellers may see larger tax breaks, SmartMoney notes that landlords may also see some perks as there is a large amount of deductions available due to depreciation and other expenses. As a landlord, you would be able to deduct most any expenses paid upfront that have to do with owning or managing your property. This includes mortgage interest payments and property taxes, and maintenance expenses such as cleaning services and utilities may also qualify.
Other advantages of renting your home include keeping the property as it appreciates, and the tax breaks that can make up for income tax when renting. Depending on the amount of your mortgage, you could have your asking rent cover the monthly mortgage payment as well as taxes and insurance payments. However, it’s important to note that being a landlord requires the time and energy to fix and maintain the building for your tenants. You might also consider hiring a part-time caretaker if you can’t manage the updates yourself.
The tax benefits of selling your home might be the greatest reason to do so. An additional advantage comes if you can use the equity on your first home to go towards your new home. From a peace of mind standpoint, having only one home (and mortgage!) to maintain is another good reason to consider selling your home.