Keep it as a rental or sell? Your LA home when you move
The trade-offs LA homeowners weigh when deciding whether to rent out their home after moving out of state.
Many people leaving LA have a low Prop 13 property tax base and a lot of equity, so keeping the house as a rental can be tempting. Here are the trade-offs people commonly weigh. Every one of them is worth discussing with a CPA and, for the landlord side, a real estate attorney.
Reasons people keep the home
- Low carrying costs. A long-held home can have a property tax bill far below what a new buyer would pay.
- Rental income and appreciation. LA rents are high, and some owners expect long-term appreciation.
- A way back. Some people aren't sure the move is permanent.
Reasons people sell
- The capital gains exclusion clock. The Section 121 exclusion generally requires living in the home 2 of the 5 years before a sale. After moving out, that leaves a window of roughly 3 years to sell and potentially keep the exclusion. Renting the home also creates depreciation, and gain attributable to depreciation is generally not excluded.
- Long-distance landlording. Property management fees, repairs and vacancies from another state add cost and stress.
- Local rules. LA has tenant protections at the state, county and city level. Which rules apply depends on the property and location, and they can affect how easily an owner can sell or move back later.
- Funding the next home. Equity from the sale can mean buying in the new city without a large mortgage.
An owner moves out in June 2026 and rents the home. If they sell by around June 2029, they may still meet the 2-of-5-year use test, depending on their facts. Waiting longer could mean losing the exclusion entirely. Depreciation claimed while renting would generally be taxable on sale. This is an illustration of how the timing works, not a determination for any particular owner.
A middle path some owners consider
Some owners rent the home for a year or two while they settle in, then decide. Others sell and invest elsewhere. A side-by-side comparison of the after-tax numbers from a CPA, plus a realistic rent estimate and a current market value, makes the decision much clearer.