When to cash out on single family home

[Peter O'Bryan]

I have a single family home in colorado that was recently remodeled with the thought it would be my long term home. I have since moved out and have gone back and forth on keeping it as a rental or selling and cashing out on the property. My concern is the ongoing maintenance of such a large property and I put more money into the remodel than I would have if I originally viewed it as a rental. My thought would be to use the proceeds from the sale to purchase a condo or townhouse which i view as an easier type of property to maintain. As a rental it would have about $200-300 after 1st mortgage,HELOC,maintenance, and vacancy taken into account. If sold should make about 120-150k. Any thoughts? What is the thought process of selling a property?

[Dave Foster]

@Peter O'Bryan, Regardless of your decision there are two very important factors to consider now that can compound your return.

1. as @Travis Sperr alluded to, the first 250K  (500K if married) of gain is tax free if you've lived in that house for 2 out of the last 5 years.  The time doesn't have to be consecutive, just a total of 2 out of the 5 before you sell it.  

So if you're short on time you can move back in for the remaining necessary and turn a huge tax hit into tax free.  Even better is if you already have lived in it long enough you could sell now and take the gain tax free...or wait and rent it for an additional 3 years (this way you've still lived in it for 2 out of the previous 5).  By doing this you enjoy three more years of income and appreciation and you don't have to make a decision right now.

2. If it is a rental now you can still benefit from doing a 1031 exchange when you sell.  This will not eliminate the gain immediately but it will defer the tax on it and you will be able to use the deferred tax to buy more replacement real estate.

Both of these factors should play strongly into your decision - taxed to tax free or taxed to tax deferred.  Nothing will boost your return more than paying attention to these immediately.  And they can both be made to work with whatever timing scenario you want.