If you’re tired of being a landlord and are thinking of selling the rental house you own, timing the sale to take advantage of federal tax laws could boost your bottom line. Here’s an example. Let’s say that you and your spouse moved out of your primary residence last year in order to purchase a larger home. Since that time, you’ve had the house rented out.

Federal tax code allows you to sell a property with gain up to $500,000 tax free if married, filing jointly, or up to $250,000 for single persons if certain criteria is met. First, you must have occupied the house as a residence for two of the past five years. The two-year occupancy does not have to be a continuous period of time but should be documented with utility bills, address changes through the post office, etc.

Depending on when you purchased the house and how long you lived there, there could be time to sell the house under these tax-exempt guidelines. Once this time period expires, any gain you realize on the sale of the rental property will be taxed under capital gains and would whittle down what you’d net on the sale. Additionally, you can only use this exemption once every twenty-four months so timing will be important in coordinating the sale especially if you’ll be selling the home you currently occupy in a short period of time.

If you do decide to sell, it would be worth having a tax attorney or CPA review the sales agreement and settlement statement to identify tax-deductible costs of the sale. As always, check with your accountant and/or financial planner to determine how a sale could impact your individual situation. Since the federal tax system allows you several avenues to keep profit in your pocket, it makes sense to put timing and expertise on your side to maximize them.

Published: January 2, 2001

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