Rent vs. sell calculator

How it is calculated

Difference = (Rental cash flow + sale proceeds after tax) − (Cash from selling now, invested)

Home sale exclusion

Up to $250,000 of gain, or $500,000 for a married couple filing jointly, is tax free if you owned the home and lived in it for at least 2 of the 5 years before the sale (IRS Publication 523).

Renting after you move out

Publication 523 does not count time after you last lived in the home, within those 5 years, against the exclusion. So renting it out is fine as long as you still pass the 2-of-5-year test when you sell. If you lived there at least 2 years before moving out, that generally means selling within 3 years.

Depreciation recapture

Depreciation reduces your basis and is never covered by the exclusion. Publication 523 says the exclusion doesn’t apply to gain from depreciation after May 6, 1997, and IRS Tax Topic 409 taxes it at a maximum rate of 25%.

Depreciation on a former home

It starts from the lower of what you paid (plus improvements) or the home’s value when it becomes a rental, without the land, spread over 27.5 years (Publication 527).

Opportunity cost

Selling frees cash that could earn a return elsewhere. The calculator grows it at the rate you choose, and invests the rental cash flow at the same rate, so both paths are compared on the same terms.

Worked example

1. A married couple filing jointly has lived in their home for 5 years. It is worth $400,000, they paid $300,000, and $250,000 is left on a 6.5% loan with 25 years to go.
2. Selling now: $400,000 less 6% selling costs ($24,000) and the $250,000 loan leaves $126,000. The $76,000 gain is within the exclusion, so there is no tax. Invested at 6% for 3 years, it grows to $150,068.
3. Renting for 3 years at $2,600 a month, after 5% vacancy, 8% management, $7,800 of yearly costs and $20,256 a year of loan payments, the rental runs close to break-even: −$702 after 3 years, including the 6% return.
4. Selling after 3 years, with the home’s value growing 3% a year: $437,091, less $26,225 of selling costs and a $236,769 loan payoff.
5. Depreciation over those years is $25,455 on a $240,000 building. That part of the gain is taxed at 24%: $6,109. The rest of the $136,320 gain is excluded, because they lived there 2 of the 5 years before the sale.
6. Renting ends with $167,285, which is $17,217 more than selling now. Rent for a fourth year and the exclusion is lost: $18,479 of capital gains tax cuts the lead to $5,956.

What decides it

Timing matters most. If you lived in the home for at least 2 years before renting it out, the exclusion generally survives about 3 years of renting, because the test looks back over the 5 years before the sale. After that, the whole gain is taxable. Open the year-by-year comparison to see where your numbers cross that line.

Depreciation is taxed when you sell whether or not you claimed it. Publication 523 reduces your basis by depreciation you took or were allowed to take, so skipping the deduction does not avoid the tax.

Growth in the home’s value applies to the whole price, not just your equity, so even modest appreciation can favor keeping it. A flat market, a large repair or a long vacancy can reverse the result quickly. The starting figures are examples, not forecasts, so try your own.

This calculator uses federal rules and taxes the home only when it is sold. It leaves out income tax on rental profit or loss during the rental years, state tax, 1031 exchanges and partial exclusions for special circumstances. It assumes the rental starts in January after you move out and the sale happens at the end of a year. The results are estimates, so check them with a tax professional before deciding.