Should I Sell or Rent My House?

It depends on the numbers and your tolerance for being a landlord. Renting tends to win when the rent comfortably covers the mortgage and expenses, you expect solid appreciation, and you can sell within about three years to keep the tax exclusion. Selling tends to win when cash flow is negative, you'd owe significant tax on a long-held rental, or you'd rather invest the equity elsewhere. This calculator compares the projected after-tax net worth of each path.

Only if it produces a fair return on the equity you're leaving in it. Add up the rent, subtract the mortgage, property tax, insurance, maintenance (about 1% of value a year), vacancy (about 5%), and management (8–10% if you don't self-manage). If the result is a thin or negative cash flow and the cap rate is well below 5%, your equity may work harder invested elsewhere — unless you're counting on appreciation.

Section 121 lets you exclude up to $250,000 of home-sale gain ($500,000 if married filing jointly) if you owned and lived in the home at least 2 of the last 5 years (IRS Publication 523). Because you need 2 years of use inside that 5-year window, the practical effect is that you generally must sell within about 3 years of moving out to keep the exclusion. Rent longer and that gain can become taxable.

Possibly. If you sell within about 3 years of moving out you can usually still claim the Section 121 exclusion on most of the gain. Sell later and the exclusion is generally lost, so the gain above your cost basis is taxed at long-term capital-gains rates (0%, 15%, or 20%, plus a possible 3.8% net investment income tax). Depreciation you took while renting is taxed separately — see below.

While a home is a rental, the IRS lets you depreciate the building (not the land) over 27.5 years, which lowers your taxable rental income. When you sell, that depreciation is 'recaptured' — it is never covered by the Section 121 exclusion and is taxed as unrecaptured Section 1250 gain at a maximum rate of 25% (IRS Topic 409). This calculator estimates that recapture in the rent-then-sell path.

Aim for positive monthly cash flow after all expenses and the mortgage, and a cap rate (net operating income ÷ value) in roughly the 5–8% range for a healthy US residential rental. A former primary home often cash-flows poorly as a rental because the mortgage was sized to a purchase price, not to what the rent can support — which is exactly what this tool surfaces.

Beyond the tax clock, being a landlord means vacancy, repairs, problem tenants, management time or fees, landlord insurance, and having a large, illiquid asset concentrated in one property. Many owners underestimate maintenance and vacancy, which turns a paper profit into a loss. Selling converts the equity to cash you can diversify, at the cost of giving up future appreciation and the rental income.

Moving back in can help you re-qualify for the Section 121 use test, but it does not erase depreciation recapture, and 'nonqualified use' rules can still prorate part of the gain as taxable. The mechanics are fact-specific. Use this calculator for the ballpark, then confirm your situation with a CPA and IRS Publication 523 before relying on any strategy.