Ask Terry Questions Recession: Renting out my house. Sell in 2015 or wait ?

Recession: Renting out my house. Sell in 2015 or wait ?

By Terry Savage on May 12, 2015 | Housing / Real Estate

Hi Terry, Due to job loss, income & medical issues I have been renting out my house for 2 years. I owe $130k, 22 yrs left on 5.75% mortgage, $230/mo. towards principal , $6525 yr. taxes. Trouble with refinancing due to illness & I am not making money on this. I have been holding off selling due to low market values. I know you do not have a crystal ball but your opinion and feeling about selling this year or waiting would be appreciated. Thanks!

Terry Says:  You’re asking one question, but first consider something else.  If you converted your personal residence into a rental, you might have some tax benefits.  Here’s what TurboTax says:

Losses from selling a personal residence are not deductible. You can only claim tax losses for sales of property used for business or investment purposes.

However, if you convert a personal residence into a rental property and then sell it for less than the original cost, will you then have a deductible loss? Maybe. The tax basis of the rental property is the lesser of the cost or the value when it is placed in service, plus any improvements, less any depreciation taken. So, if the house declined in value before converting it into a rental property you might not have a tax loss. However, a loss from a decline in value after conversion to a rental, is generally deductible.

Here’s a link to the entire article.

Now, if you still have a gain on the home, you can shelter that up to $250,000 for an individual owner, if you sell  it as a personal residence.  But if you sell a personal residence at a loss, there is no tax deduction.   So you need to look at the tax implications with someone who can advise from specifically a tax point of view.

I will move on to your implied question — when to sell.    And that’s a tough answer. I don’t know the location or the issues involved in maintenance.  It is my general feeling that real estate values will rise (barring some huge mistake in Washington that throws us into another huge recession).  It has been demonstrated that they will “print” to keep the economy going, and that is typically eventually good for asset prices.  (You’ve been seeing asset prices rise in the stock market.  And a lot of people are waiting for that to “spill over” into real estate.)  I think that will happen — eventually.

But there is no price on peace of mind.  This is an all-or-none decision — not one you can split 50/50 , like selling “part” of a stock holding.  So if you are overwhelmed with this property, coping with continuing losses that are draining you, or if the neighborhood is deteriorating in some way,  I can understand your decision to sell.  Just don’t ever torture yourself by looking back.



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