Is the housing market affecting your decision to move?  Many have delayed moving in the hopes that the housing market will recover.  Unfortunately, some have the need to move and are saddled with a home that they cannot sell.  One way people have found to weather the situation is to rent out their home until the market improves.

There are many considerations that should be made before you set off on this endeavor.  Foremost in your decision should be the fact that you will become a landlord with all the responsibilities of finding a tenant, collections and maintenance.  Other immediate considerations may include contacting your insurance agent, attorney and mortgage provider to discuss the implications of renting your home.

In addition to the other considerations, the tax implications of this decision are numerous.  All the rental income will need to be reported as taxable income on your personal tax return.  You will be entitled to deduct certain expenses against this income which include operating expenses, utilities and repairs and maintenance.  Additionally, you will be able to claim depreciation on the home.  Often these expenses can fully offset the income and under current tax law, up to $25,000 of rental losses may be taken in any given year provided your modified adjusted gross income does not exceed $150,000.

Another area of concern are the tax consequences of the eventual sale of your residence.  In general, you can escape taxation on up to $250,000 ($500,000 for certain married filing joint couples) of gain on the sale of your principal residence.   This is only available if you have used the home as your principal residence for two of the last five years preceding the sale.  However, you cannot exclude the part of the gain equal to the depreciation deductions you claimed while renting your home.

Turning a principal residence into a rental property is not an easy decision to make.  You should sit down with a tax professional and review how a rental decision could affect you personally.


About Blackman & Sloop CPAs, P.A.:

Blackman & Sloop is a full-service CPA firm headquartered in Chapel Hill, North Carolina and is actively involved in auditing, taxation, management consulting, financial planning, and related services. The firm directs a large part of its services toward providing management with advice on budgeting, forecasts, projections, financing decisions, financial analysis, and tax developments. The firm also performs review and compilation services and prepares not-for-profit, corporate, individual, estate, retirement plan, and trust tax returns as well as technology consulting services regarding installation and training on QuickBooks. Blackman & Sloop provides services in Raleigh, Durham, Chapel Hill, RTP, Hillsborough, Pittsboro, Charlotte, and the rest of North Carolina. To find out more please visit http://www.blackmansloop.com

Contact: CPA cpa@blackmansloop.com

Toll Free: 1-877-854-7530
The Exchange West
1414 Raleigh Rd, Suite 300
Chapel Hill, NC 27517