When your house is no longer your home

Life changes, such as a  new job, graduate school, divorce or marriage, often cause folks to rent out their home, while moving to another.  Sometimes, when you move out, you think you'll be moving back in, so it doesn't seem like a big deal. 

But to the IRS,  "big deals" may be happening.  I'm not an accountant, and I don't know the tax code.  But here are a few things I have seen. 

In general, when you sell a personal residence, even if you sell for a gain, there is an exemption so you don't pay taxes on the gain; something like $250,000 of gain for a single person and $500,000 of gain for a couple.  So, most likely, if you sell your home, make a bunch of money and don't reinvest it in another home,  you're okay.  But...when you move out of your house and rent it out, you are functionally, converting your residence to investment property.  There are intricate rules (this is the IRS after all), but depending on how long you lived there and rented it out, when you sell, any gain will most likely be taxed as regular income.  That means, whatever your tax rate is, will be applied to the gain when you sell.  Ack!

And, that rent you've been getting?   That rent is income, and should probably be claimed on your taxes as such.  Now, with investment property there are several nice tax deductions that help lessen the tax hit of the rental income.  And, you may well depreciate the property.  But, you'll need to be claiming the income.

Rental property is often the threshold beyond which folks choose to have their taxes prepared by an accountant.  Especially if you are a new landlord, a professional guide through that part of the IRS code can be a good idea. So if you kinda ended up as a landlord unintentionally, think about getting some help.

ps.  Many people intend on becoming landlords, purchaser property with that specific intent and embrace tax strategies around investment property.