There are many reasons why people want to sell a home, but one of the most common reasons is that they plan on moving to a new location. When this happens, most homeowners put their home on the market and utilize the proceeds to make a down payment on their next home. But in today's uncertain economic climate, people have found that financial scenarios are changing and traditional situations regarding buying and selling property are changing as well. For homeowners who are in need of relocating, this situation has forced many of them to consider alternatives to selling their homes.
While it is still common practice for people to sell in order to relocate, many individuals are choosing to lease out their homes instead and then find alternative ways to buy a home in their new location. Some homeowners even decide to lease in their new location rather than buy a new home right away.
There are advantages and disadvantages that each homeowner must weigh before making the decision to sell or lease their home, but by carefully considering all the options and making informed decisions, most homeowners eventually find the solution that best fits their own situation.
For many, the only decision more important than buying a home is the decision to lease. As difficult as the decision might be, many people are forced to sell when they decide to move to a new location because they simply need the money from the home sale to acquire their next house.
This makes sense for people who are considering upgrading to a better property or are not planning on coming back to where they currently live. For others who have the ability to purchase a home in their new area or are willing to lease, or are not sure if they want to return to their home in the future, the decision to sell their home can be more of a challenge. For them, it is vital to explore the advantages and disadvantages of selling their existing home.
When it comes to selling your home, there are some solid advantages to doing so. First of all, it immediately frees up a large amount of equity that can be applied to the purchase of your new home. If you choose to lease in the area you are moving to, this cash can be put to work for you in an investment fund or other source of income, generating security. Most of these funds will be tax free up to $250,000 for singles and $500,000 for married couples, so taking advantage of your capital gains tax savings gives you the opportunity to realize an immediate infusion of cash by selling your home. There is also the advantage of maintaining simplicity by only having to concern yourself with one property at a time, even more so if choosing to lease at your new location.
There are disadvantages to selling a house that must also be considered. If you have a large amount of equity in your home, beyond the capital gains thresholds, you will wind up paying capital gains tax on the amount above that threshold depending on your income. Another disadvantage to selling is that you will lose the potential appreciation of the property value. This can be an important consideration if your home is in an area with a stable housing market where values continue to rise.
If your local market is declining, that will present another disadvantage in that it might be difficult to sell your home or you might not be able to get close to your asking price. You also must take into account how difficult it might be to move back into your area in the future if home prices are going up and your move is not permanent. Will you be able to purchase a similar home for the same price?
For some individuals, selling their home is not an option they want to consider. Their move might only be temporary and they plan on returning in the near future, in which case selling doesn’t make sense. Others may be considering a permanent move, but they might owe very little on their house or they might have enough saved up for a down payment on a new home without having to sell their own. For these individuals, exploring the advantages and disadvantages associated with leasing their home might lead to the decision to not sell.
There are many advantages to leasing out your home rather than selling it. There are certain tax benefits that can be realized when you become a landlord. Rental income is taxed as personal income; however, there are multiple deductions and expenses that can completely eliminate your tax bill.
Basically, any expense that you can attribute to the renting out of the property can be deducted. Any repair or maintenance costs can be deducted as well as mortgage interest, property taxes, management fees, advertising costs and fire and liability insurance premiums. Along with all these deductions, you can also deduct depreciation of the home and any upgrades. Basically, you take the value of the home, less the value of the land, and divide it by 27.5, which is the number of years in the recovery period. So if your home is worth $300,000, you can depreciate $10,909 of its value every year. Along with the other deductions, this makes leasing out your home a very viable financial decision.
There are, however, some disadvantages to leasing. First of all, if you plan on selling the home sometime in the distant future, you might be taxed on the depreciation you deducted as well as the capital gains from the sale. Another drawback is that you never really know what type of renters you might get and whether they will be late on the rent or damage the property.
Most importantly, you need to determine if you are capable of being a landlord or whether you would rather use a property management company to take care of the property, which will cut into your rental profits.
The decision to sell or rent out a home can be a very difficult choice for people to make. Understanding the numerous advantages and disadvantages of each scenario can go a long way toward making the decision a little easier, but the reality is that there isn’t one answer that will suit every situation. Each individual must explore the pros and cons of their own particular situation and make the decisions that best suit their particular needs. Having the proper information needed to make those choices is the first step in the process.
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