Deciding to sell or rent a primary residence requires guidance from professional advisors. The passing of Prop 19, whereby the property tax will increase substantially if the beneficiary does not live in the home full-time, may change the focus. Here are some pros and cons for each scenario.
Selling
- No cash outlay for repairs prior to selling “as is”
- Capital gains tax applies, but so does a step-up in basis
- Home Sale Tax Exclusion* (capital gains deduction $250K-$500K)
- High property values do not last forever, what goes up eventually comes down
- Re-invest the proceeds in an updated or income property
- Ownership responsibilities eliminated after the property sale
*To qualify for the HST exclusion, the owner needs to occupy the home as a principal residence for two years (of the past five) prior to selling. If the home has been rented for four years, and you decide to sell, it would require moving back or paying higher taxes as an income property sale.
Renting
- Cash outlay to repair, enhance or retrofit prior to renting; a professional inspection is suggested
- HOA (condo association) has limitations on rentals
- Landlord responsibilities: repairs, collecting rent, emergency calls, etc.
- Tenant evictions for non-payment cost time and money (no evictions during COVID)
- Cash flow: if rent is needed to pay expenses elsewhere, factor in non-payment period
- Rental income is taxed; selling an income property contains higher taxation (unless exchanged)
- Shared responsibilities, if inheriting the home with siblings
In the past year, rental prices have gone down while sale prices have increased substantially. Once the pros and cons of selling vs. renting are examined, only then can you make a sound decision.