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My husband and I have a rental house in Georgia which was owner occupied by my husband prior to us renting it out starting in January 2008. We're questioning whether we should try to sell it in the next two years due to the IRS's rule of having lived in the house for the previous 2 of 5 years for no tax on capital gains.
Does anyone know of the pros and cons of holding on to the house longer and continuing to rent it? Or should we sell it within the next two years to avoid paying capital gains on it? Since the market has gone down a bit, we'd like to try to hold on to it longer but if it makes more sense to sell for tax reasons, then that's what we'll do.
You need to live in the house for 2 out of 5 years (which you already know). Do you think you will come back to Georgia again and live in the house for two years later on in the future? If so, then hold onto it until the market gets better. If you do not think there is a chance you would come back, then sell it in the next couple of years. You will have to recapture the depreciation you took on the rental (only depreciate the value of the structure, not the land value). Has the house appreciated in value from the time that he bought it? There may be no capital gains. Anyway, sorry for the jumbled answer, getting distracted at the moment, but you can find answers on the irs website in Publication 523 'Selling Your Home'. Or call your tax accountant.
The pro is that if you are renting it for an amount that covers mortgage, property tax and homeowners insurance, then you have a free house, especially if you can rent for even more to cover other expenses or profit.
Chances are that the home will apprciate in the next 30 years that you may have a mortgage for and could very well appreciate over that time.
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