Should I rent out my house or sell it?

When you move, the house you are leaving can be sold or kept and rented out. Keeping it is tempting, especially with a low mortgage rate locked in. Whether it pays depends on things you can estimate, like rent and costs, and one you cannot: what the home will be worth when you finally sell.

The core comparison

Selling now gives you the proceeds today: the price, less selling costs, any repairs and the mortgage payoff. You can invest that money elsewhere.

Renting it out gives you two things later: the equity when you eventually sell, after selling costs and the mortgage left, plus every month's rental cash flow along the way. Renting comes out ahead when appreciation, the mortgage paydown and the rent together beat what the sale proceeds would have earned.

The rent out or sell calculator puts both on the same date. It also finds the break-even appreciation: the yearly growth in the home's value that makes the two equal. If you would not bet on the home growing faster than that, renting is a bet you may not want.

Why rental cash flow is often negative

Rent has to cover more than the mortgage. A landlord also pays property tax, insurance (a landlord policy usually costs more than a homeowner's), repairs and eventually the big replacements: roof, heating and cooling, appliances. There are months with no tenant, and if you have moved away, usually a property manager.

Take the calculator's example: a $450,000 home renting for $2,600 a month. The rent covers the $1,233 mortgage payment and $633 of tax and insurance with room to spare. But after allowing for vacancy, a 10% management fee, maintenance at 1% of the value a year, a 5% reserve for replacements and turnover costs, it runs about $232 a month short. Those allowances are assumptions, not measured figures, and the calculator lets you change every one; but leaving them out is how a rental that "pays for itself" turns out not to.

A negative cash flow does not make renting wrong. The tenant is still paying down your mortgage, and if the home appreciates you may come out ahead. It does mean you are putting money in every month, and that money could have been invested instead.

Being a long-distance landlord

Most people who rent out a home do it because they are moving away, which changes the job. You cannot meet a plumber or show the place between tenants yourself. Budget for a property manager, and ask exactly what the fee covers: some charge separately for finding a tenant, renewing a lease or overseeing repairs.

Keep a cash reserve too. A furnace replacement or a few months without a tenant can cost thousands, and a mortgage payment is due either way. Check your HOA's rules, since some restrict renting, and tell your insurer the home is now a rental.

The 2-of-5-year rule, and the three-year window

When you sell a main home, section 121 of the tax code lets you exclude up to $250,000 of gain from income, or $500,000 on a joint return if both spouses meet the use test. To qualify, the home must have been "owned and used by the taxpayer as the taxpayer's principal residence for periods aggregating 2 years or more" during the 5 years before the sale. IRS Publication 523 adds that "The 24 months of residence can fall anywhere within the 5-year period, and it doesn't have to be a single block of time."

That creates a deadline once you move out. The 5-year look-back keeps sliding forward, and the 2 years you lived there slide out of it. If you lived there at least 2 years before moving, you have about 3 years after moving out to sell and keep the exclusion. "About" matters: count by the day, because a closing on the third anniversary of your move-out can miss it by a day. The calculator gives you the date.

Military and similar service. If you or your spouse are on qualified official extended duty, you can elect to suspend the 5-year clock under section 121(d)(9). Qualifying duty is "any extended duty while serving at a duty station which is at least 50 miles from such property or while residing under Government orders in Government quarters." It covers the uniformed services, the Foreign Service and the intelligence community, and a similar rule covers Peace Corps service abroad. In Publication 523's words, "Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years."

Depreciation recapture

Once the home is a rental, you depreciate the building, not the land, over 27.5 years. Publication 527 says that for a home converted to rental use, "its basis for depreciation is the lesser of its adjusted basis or its FMV when you change it to rental use," and "You can't depreciate the cost of land."

Depreciation lowers your tax while you rent, but it comes back when you sell. Publication 523 is direct about the home-sale exclusion: "you can't exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997." That part of the gain is taxed at your ordinary rate, but no more than 25%. "Allowed or allowable" means it is owed even on depreciation you did not claim.

So a sale inside the three-year window is not entirely tax-free. A building basis of $275,000 depreciates by $10,000 a year; sell after two years of renting and $20,000 of the gain is taxable even though the exclusion covers the rest: up to $5,000 of tax.

VA entitlement: keeping the loan, restoring it, and assumption

If the house has a VA loan, keeping it as a rental keeps part of your VA entitlement tied up. You may still be able to use VA again, with less of it.

VA's Lender's Handbook (Pamphlet 26-7, chapter 3) sets the remaining amount for a loan over $144,000: "25% of the single-unit Freddie Mac Conforming Loan Limit (CLL) for the county where the proposed subject property is located reduced by the amount of unrestored entitlement." The one-unit limit is $832,750 in most counties for 2026, and up to $1,249,125 in high-cost ones. VA's own example: with a $900,000 limit and $50,000 used, $175,000 remains, and multiplied by 4, $700,000 is "the maximum amount most lenders would be willing to loan you without your needing to make a down payment." Beyond that, VA says, "Most lenders require that your entitlement, down payment, or a combination of both covers at least 25% of your total loan amount." The next loan is a subsequent use, with a 3.3% funding fee under 5% down unless you are exempt.

Restoration. Under 38 U.S.C. 3702(b), used entitlement comes back when the home is disposed of and the loan repaid, or when "A veteran-transferee has agreed to assume the outstanding balance on the loan and consented to the use of the veteran-transferee's entitlement." Paying the loan off while keeping the house, by refinancing it, allows a restoration "one time only," the handbook says.

Assumption. VA loans can be assumed by a qualified buyer. Under 38 U.S.C. 3714 the seller "shall be relieved of all further liability to the Secretary with respect to the loan" when the assumption is approved, but release from liability is not restoration: unless the buyer is a veteran substituting their own entitlement, yours stays with the loan.

What the numbers leave out

The calculator models the sale taxes, not the income tax on rent. Rental income is taxable, depreciation and expenses offset it, and the passive activity loss rules can limit using a rental loss against other income. How that nets out depends on your income and the rest of your return. Treat the comparison as a way to frame the decision and to find the dates that matter, then take it to a tax professional before you list or sign a lease.

Sources: 26 U.S.C. 121, including (b), (d)(6), (d)(9) and (d)(12). IRS Publication 523 and Publication 527 (2025). 26 U.S.C. 168(c) for the 27.5-year period, and 26 U.S.C. 1(h)(1)(E) for the 25% rate. 38 U.S.C. 3702 and 3714. VA Pamphlet 26-7, chapters 2 and 3, on KnowVA, and VA's home loan limits page. FHFA, Conforming Loan Limit Values for 2026.