Posted by TomC (Md) on February 26, 2001 at 15:33:14:
Sell it!! The personal residence exclusion is too good to pass up…I wouldn’t pass up the opportunity.
But the real question is “How to sell it?”. (You don’t mention if you have any personal debt that you should retire, so I will pretend you don’t.)
Either sell it outright to a buyer with conventional financing and use the tax-free profits for another investment…
Sell it with owner financing. If you sold it for $300K with 10% down at a 10% loan rate for 30 years, you have a secure investment that would:
Have $30K tax-free in your pocket
Receive a payment of $2573 ($2370 PI + $203 TI) per month.
You would then pay out the $1467 to your mortgage co which leaves you a profit of $1106 per month.
This will be treated as an “installment sale” by the IRS. When you sell your personal residence via installment sale, you pay income tax on the interest you earn, but not the first $250K of principal payments! Of course, consider that the first 10 years the payments are mostly interest and therefore taxable.
The second option gives you a good income without directly managing the tenants, $30k to invest in more properties and avoids cap gains tax on the sale of the property.
Just my $.02