Sell or Rent out? (with Cap Gains caveat)

[Sean Craigg]

I'm sharing to check my calculations are correct 

and to see what a wise investor would do.

Situation:

SFH near Austin, TX area was a primary residence for 2.5 years, moved to another house nearby.

It is being rented out for 1.5 yrs. Lease term ends September 1. Tenants want to extend lease next year.

But Cap Gains Tax exclusion as primary residence would expire. Also property taxes increases x 2.

Now the numbers (rounded up for simplicity):

bought at 500K, now valued at 1M

Cap gains tax bill would be 100K.

Currently, the rent is 3.5K
New property tax increases dramatically to 2K/month next year.

As such, next year PITI would be 4K (PI will still be 2K)

Tenants pay on time. New roof, new AC, well maintained in a good school district.

CHOICES: - Cap Gains Tax exclusion expires on 2 and 5

1) sell when the lease ends (problem is - it'd be in September, after the peak season)
2) increase rent and continue to rent - how much to increase?

3) Extend lease for 6 months to prepare sale for spring. (within Capital Gains Tax exclusion)

4) Sell to tenants ?

5) do a 1031 exchange? (unlikely)

6) any other options?

As an investor, what would you do?

[Zachary Inman]

Those new taxes kill the deal. You could 1031 into another property, but the supply is low (as we all know). You could find a syndication that offers accelerated depreciation losses to cover some of taxes while the capital is still earning a good return.