Rent your house out, or sell it?
Relocating for work, moving abroad or upgrading, the usual advice is “rent it for a while, you can always sell later.” That advice skips the rule that usually decides the answer: the tax-free sale of your home expires three years after you move out.
Your house
As a rental
Assumes 8% management, 8% maintenance and reserves, 4% vacancy, 4% return on sale cash invested elsewhere, and a 37% tax rate on rental income.
The 3-year deadline
Selling in year 4 instead of year 3 adds about $93,503 of tax. The home-sale exclusion (up to $500,000 of gain) needs 2 of the last 5 years lived in, so it expires 3 years after you move out.
Sell now: net to you
$463,624
after payoff, stamps and $0 tax
Rent 5 yrs, then sell
-$2,892
vs selling now, in year-5 dollars
Year-1 cash flow
-$319/mo
you pay in each month
Advantage of renting, by how long you rent
Green bars: renting comes out ahead of selling now. Red bars: selling now wins.
What the calculator is weighing
- The home-sale exclusion and its 3-year clock
- If you owned and lived in the home for 2 of the 5 years before a sale, up to $250,000 of gain ($500,000 married filing jointly) is generally excluded from tax. Once you move out and rent it, that test only holds for three more years. Sell in year four and the whole gain can become taxable. If you moved for a new job before reaching two years, a partial exclusion may apply to a sale now.
- Depreciation is taxed either way
- While it is a rental, the building is depreciated against your rental income. That deduction is “recaptured” and taxed when you sell, even inside the three-year window. The exclusion does not cover it.
- Being a landlord costs money
- Management, maintenance, vacancy, a placement fee every couple of years, and a landlord insurance policy that usually costs more than a homeowner policy. If the rent does not cover the mortgage and those costs, you pay in every month.
- Selling costs in Massachusetts
- Deed excise stamps of $4.56 per $1,000, attorney and certificate costs, and a brokerage fee that is yours to negotiate. There is no standard rate. Both options pay these, so they matter less to this decision than people expect.
Keeping it as a rental?
We lease and manage homes for owners who have moved away, including owners overseas: fee on rent collected, no maintenance markup, and rent paid straight into your own account.
Educational estimate, not tax or legal advice. Simplified: assumes rental losses are suspended and used at sale, and does not model nonresident withholding (FIRPTA) or state rules outside Massachusetts. Confirm with a CPA before you decide.