East Bay homeowners moving out of their home often ask for my advice on what can be a difficult decision: should they sell their former home or rent it out? At Feagley Realtor’s we’re in a unique position to help our customers assess their options. We are long time residential realtors, but we also have a full-service property management division. That’s given us a deep understanding of both the East Bay’s sales and rental markets.
Of course, the answer is not the same for everybody. There are many factors to consider when making this choice — from local Bay Area market trends to personal financial needs. We’re going to cover these issues in a few blogs and this first one will focus on personal finance decisions.
Personal Family Finance Decisions
When making your decision, I recommend that you first take into account your plans and what your income needs may be in the future. Selling your home may provide immediate equity to purchase another home, pay off debt or invest in something else.
Keeping your home, on the other hand, could be a long-term investment strategy that offers a steady stream of rental income. The home also could eventually be passed down to a family member.
Think about taxes, too. If you sell, you’ll need to consider capital gains taxes (if applicable) and local city transfer taxes.
Whether you’ll pay capital gains taxes—and if so, how much—depends on whether you are selling your primary residence or an investment property. If you are selling your primary residence, it will depend on how long you’ve been in your home. If you’ve lived there for at least two of the last five years, you can pocket up to $250,000 in profits tax-free or $500,000 for couples filing jointly. Anything over that will require that you pay capital gains taxes.
There are exceptions to the two-year rule, so we recommend that you talk to your tax advisor if you are weighing this decision.
If you choose to rent, you’ll be taxed on rental income but can write off expenses associated with taking care of the house along with taking a deduction for depreciation. (view the IRS fact sheet here: https://www.irs.gov/newsroom/know-the-tax-facts-about-renting-out-residential-property).
City and County Transfer Taxes
In Alameda county, the seller is typically responsible for the country transfer tax fee as well as 50% of the city transfer taxes. The buyer pays for the recording, escrow, title and 50% of the city transfer taxes. The country transfer fee in Alameda County is $1.10 per $1,000.
|Alameda||$12.00||per thousand on full value||Ordinance No. 2987 AMC|
|Albany||$11.50||per thousand on full value||Ordinance No. 02-60|
|Berkeley||$15.00||per thousand on full value ($1,500,000 and less)||Ordinance No. 6072-NS|
|$25.00||per thousand on full value ($1,500,001 and above)||Ordinance No. 6072-NS|
In Contra Costa County, the seller also typically cover the county transfer tax and half of the city transfer tax. Buyers pay for the other half of the city transfer tax as well as the recording, title and escrow fees.
The documentary transfer tax rate for Contra Costa County is $1.10 per $1,000.
The City of Richmond charges an additional documentary transfer tax fee which is typically split between buyer and seller. Transfers under $1 million: the rate is $7.00 per $1000 consideration ($7.00 per $1,000). Transfers between $1 – $3 million: $12.50 per $1,000. Transfers between $3 – $10 million: $25.00 per $1,000. Transfers over $10 million: $30.00 per $1,000.
What Are Your Future Plans?
If you are moving out of the area temporarily and expect you will move back, maintaining the property might be a good choice to avoid having to find a comparable property that is affordable in the pricey and competitive Bay Area market.
Keep in mind, though, that if you are moving far away, it could be difficult to properly maintain and manage the home yourself.
That’s where Feagley Realtor’s property managers can help you! Hiring a local property manager is a good idea for peace of mind. We’ll handle any immediate issues that arise and help you maximize your return on your real estate investment through tenant selection and rent collection.
Consider Whether You can Keep Your Tax Basis in New Property
Your age also is something to consider. If you are 55 or older and own a home in California, you should consider the possibility of transferring your property tax basis to a new property. California’s propositions 60/90 allow you to keep you tax basis when you downsize into a property that’s of equal or lesser value than the original property. That can be a substantial savings for long time homeowners who have benefitted from Proposition 13’s limit to property tax increases.
This article lists out the California counties that have an ordinance enabling the intercounty base year value transfer. http://www.boe.ca.gov/proptaxes/prop60-90_55over.htm
Thinking about all of these factors will help guide you toward making the best choice for you on whether to sell or rent your property.