Capital Gains Tax for selling old primary residence home (tenants, 2015, landlord)

[Milo_Bloom]

I think I have this right, but I am not sure. We bought out first house in 1995 for a cool 120k. We outgrew the house, and bought a second house in December of 2012. Since Jan of 2013 our first house has been rented. Those tenants have just moved out and we were planning to now sell the first house. We expect to sell the house for around 250k

But now we have a new family that wants to rent our old house. My first inclination is to keep renting the house if only because we would continue to build equity. I should add that I don't really think house prices are going to go up much higher here in Arizona, but we have a 15 year loan on the house and each month payment adds almost 800 in equity.

But I am concerned about capital gain taxes.

My understanding is that since our first house was a primary residence for 2 of the last 5 years that we can sell the first house now without paying any tax on the gain. But it is also my understanding that if we rent the house for another year, and then don't sell it before Dec 2015 we will have to pay tax on that gain. And that tax would be on the full gain of approx 130k.

Is that right? Even at the low tax rate of 15% that is a 20k tax bill. That would seem to make the deal not worth it.

Is there anything wrong with my logic on this?

[mathjak107]

a gain like that could trigger the amt tax making the overall tax bite more than 15% .

[Moonlady]

Your logic is correct. Unless you can make up the capital gains by renting, it's definitely better to sell. Keep in mind it's 3 years from when you last occupied the house as a primary residence, not the date you started renting it.

[sware2cod]

You have other potential maintenance expenses the longer you keep it. Even with great renters, things wear out. Roof($$$), paint (interior and exterior), windows, doors, plumbing, appliances, garage door, etc.

If you want to sell it, then sell it. That's a big loss on cap gains tax. I think you will lose more $ (by having to pay cap gains tax) than you will gain (by keeping it longer and having the home increase in value).

This is a great time to sell in many locations. Who knows what the future will hold. What if you want to sell in 4 years but the market turns and becomes a buyers market.

[FalconheadWest]

Yes, you're correct. Unless you're making a nice profit, and you would want that profit for a couple of extra years to make up the amount you're going to pay in Capital Gains... but if you rent it out just to wash the amount, that's pointless and you might as well sell it now and not have the hassle of the managements of the property.

[jackmichigan]

Go ahead and sell. If you want to be a landlord (and if therapy doesn't help) go ahead and invest the proceeds into another house that you can rent out.