Consider Renting Our Primary Home

[Alex L.]

We are in the process of getting another personal residence and I'm considering renting the one we live in currently out. We did this with our first home which was a starter home and was more of a no-brainer. This was an upgraded home, currently valued at $750k or so. Is there a demand to rent at this price point? Comparative listings in terms of beds and baths are lower than what I would want to get, but those are starter homes at half the price of ours. Luxury apartments in our area are running $4000 - $6500. Would it be abnormal to charge 4k - 6k in rent? Is there a market for these types of rentals or should I just sell it?

[Bill B.]

@Adam Venci you are probably still way ahead of @Alex L.. Your property taxes might be double his, but he’s going to be hit with about an 8% state income tax if he waits to sell. 

Alex:  if you sold tomorrow and netted $100k more than you paid on your primary home there would be zero taxes due. If you rent it for more than 3 years and it’s still worth exactly the same you’d owe about $15k in federal capital gains tax plus about $8k in MN state income tax (unless this $100k added to your regular taxable income pushed you in to an even higher tax bracket.) so you’re going to create a $23k tax bill out of nowhere. Since it’s only $100k it’s not an insane amount, but pretend that amount amortized over holding period is an added expense and your rental probably doesn’t make sense. 

You would almost be better off selling the home and buying an identical one next door. You’d probably have less than 1/2 as much in closing fees as you save in taxes. If you wouldn’t consider doing that, then you definitely shouldn’t hold your current property with a higher cost.