Sell it, or rent it out?

You are moving and you do not have to sell. The house could be a rental instead. Plenty of people landlord by accident this way, and some of them do well.

It is a real decision with real arithmetic behind it, and one piece of that arithmetic has a deadline most people do not know about.

The deadline first, because it is the part that surprises people

If you sell a home that has been your principal residence, federal law lets you exclude a large amount of gain from tax — up to $250,000 if you file single, $500,000 if you file jointly. Those caps have been the same since 1997 and are not indexed to inflation.

To qualify you have to pass two tests measured over the five years ending on the date you sell: you must have owned the place at least 24 months, and lived in it as your principal residence at least 24 months. The months do not have to be consecutive.

Here is the consequence. Move out, rent the house, and the clock starts running. Rent it for a couple of years and sell, and you probably still qualify. Rent it for four years and sell, and you have fallen out of the five-year window — you no longer have 24 months of residency inside it, and the exclusion is gone.

On a house with $200,000 of appreciation, that is not a rounding error. It is the largest single number in the entire decision, and it is the one that quietly expires.

Two things to be clear about. Depreciation is separate: any depreciation you claim while renting is never covered by the exclusion, and gets recaptured at a federal rate of up to 25% regardless. And there are exceptions and partial-exclusion rules that can apply to particular situations.

Which is to say: this paragraph is the reason to call your accountant, not a substitute for it. Get your own numbers from someone who can see your return.

What renting actually returns

The honest version of rental math is not rent minus mortgage.

Start with the rent, then subtract: taxes, insurance — which costs more on a non-owner-occupied property — maintenance, and vacancy. Then subtract management if you are not doing it yourself, or your own time if you are. Then set aside capital reserves, because the roof and the furnace are now line items rather than surprises.

What is left is your actual return, and the number to judge it against is what the equity would earn if you sold and put it somewhere else. A house with $250,000 of equity throwing off $400 a month after everything is returning under 2% on that equity. That may still be the right call for other reasons. It is not a good return, and it should be named as what it is.

Then there are the things that do not show up in a spreadsheet. A tenant who stops paying is a Connecticut eviction, which takes time and money. A distant rental is harder than a local one. And being a landlord is a job, lightly or heavily depending on the property and the tenant.

What selling returns

Your net proceeds, which is the price less the mortgage payoff, conveyance tax, attorney, commission and any concessions — and then whatever those proceeds do next, whether that is a down payment on the next house, a lower mortgage balance, or something else entirely.

The clean part of selling is that it ends. No tenant, no roof, no vacancy, no eviction risk, and the residency clock becomes irrelevant because you used it.

The cases where renting usually wins

You are likely to come back. A two-year assignment elsewhere is different from a permanent move, and selling and re-buying the same kind of house costs real money in both directions.

The loan is unusually good. A low fixed rate on a property that covers its costs is an asset that is genuinely hard to replace, and that alone has kept a lot of accidental landlords in business.

The rent genuinely clears everything with margin. Not breaks even — clears it, with something left for reserves.

You want to be in the rental business. Some people do, and a house you already know is a reasonable first one.

The cases where selling usually wins

You need the equity for the next purchase. Two mortgages and a tenant is a harder way to buy your next house than one closing.

The residency clock is close. If you are approaching the end of that five-year window with meaningful gain on the table, the tax treatment can outweigh several years of modest cash flow. This is the calculation most worth doing carefully, with your accountant, before you drift past it.

The house is a poor rental. Dated systems, high maintenance, an awkward layout, a weak rental market for that type. Some houses are good to own and bad to rent.

You do not want the job. That is a sufficient reason and it does not need defending.

How to actually decide

Get both numbers, properly, and look at them side by side.

For the rental side: a realistic market rent — not what you hope, what comparable units actually lease for — and an honest expense list with vacancy and reserves in it.

For the sale side: a current valuation and a net proceeds estimate with every line in it.

Then take both to your accountant along with the residency question, because the tax treatment can be larger than the difference between the two operating cases, and it is the piece neither a rent estimate nor a valuation will tell you.

We can produce the first two. We value and sell owner-occupied houses and we have worked the investment and rental side of this market for years, including rental and fix-and-flip property, so a realistic rent and a realistic net sheet are both things we can put in writing for you.

Bring both to your accountant and you will have made the decision on evidence instead of instinct. No cost for either number, and no obligation to list.

Zack DeCaro is a licensed real estate broker in Connecticut and Massachusetts and an agent in Rhode Island, New York and Florida, with Property Works New England in Rocky Hill. He is not an accountant, a tax adviser or an investment adviser, and nothing here is tax or investment advice. Tax rules described are general, change over time, and apply differently to different situations — consult your own tax professional before acting.