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• W86256005 abstract "Should I sell it or rent it out? How will you respond when your clients ask you that question when they're moving out of a home? CPAs can provide a valuable service by helping clients think through this issue in a structured way. To help, we've created an Excel spreadsheet (www.aicpa.org/ download/pubs/jofa/2005_06_witmer. xls) that compares the net present value of the cash flows from renting a house with those from selling it immediately. It is important to understand that there are qualitative as well as quantitative considerations to the decision. The spreadsheet will be most helpful in dealing with the quantitative factors, while the following section addresses a number of the qualitative factors. DECISION FACTORS The decision of whether to sell or rent a home is complex. The spreadsheet will enable CPAs to help homeowners make a more informed choice, but several of the variables that affect the rent-or-sell decision are not quantitative and thus cannot be incorporated in the decision model in the spreadsheet. CPAs should discuss them with their clients in addition to reviewing the spreadsheet results. Some of these nonfinancial factors are * Adequate funds. Can your client afford two homes? The homeowner may be able to refinance or borrow against the equity of the old home for the purchase of the new one. Generally, there will be periods during which the rental is vacant, thus generating no income. CPAs should make sure their clients have sufficient funds to cover both homes for several months. * Rental market. Investigate the local supply and demand for rental housing. There must be sufficient demand for rental properties in your client's area. Determine the rents charged for similar residences. Real estate agents, rental management companies, local newspaper classifieds and local renters offer this information. Research zoning restrictions to prevent unpleasant surprises. * Problem tenants. A vacant rental is better than a bad tenant--but neither is desirable. It can take months to evict someone. In the meantime, tenants can cause severe damage to the property. Check local laws regarding eviction and deadbeat tenants. Advise clients to consult an attorney about how to handle deadbeat tenants before renting. Run a credit check on the applicants and call previous landlords and other references. CPAs should prepare their clients for the possibility of bad tenants and the associated difficulties. An estimate of postrental repairs can be factored into the spreadsheet's outcome. * Managing the property. If the client is busy or lives more than an hour away from the rental property, it may be best to pay a professional manager to collect the rents and arrange repairs. Managers usually charge 8% to 10% of the rental income. Discuss the advantages and costs of a rental management company with your clients. If they would like to have the property managed, you can enter a percentage into the variables section of the spreadsheet. * Taxes. Current tax law gives homeowners a great deal of flexibility when dealing with a former residence. If the taxpayer has lived in the home as a primary residence for any two of the previous five years, any gain on the sale of the house is excluded from taxation up to $500,000 for married taxpayers filing a joint return and $250,000 for single taxpayers. And so, with careful planning, your client can avoid taxation on the sale of a former residence, even after converting it into an income-producing property. See Tax Implications of Renting Your Home, page 88, for a more detailed discussion of the factors CPAs must consider in helping their clients make those plans. WORKING WITH THE SPREADSHEET The spreadsheet provides a structure for obtaining the information needed to help CPAs formulate a recommendation to clients. You can download the spreadsheet from www.aicpa.org/ download/pubs/jofa/2005_06_witmer. xls. …" @default.
• W86256005 created "2016-06-24" @default.
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• W86256005 date "2005-06-01" @default.
• W86256005 modified "2023-09-24" @default.
• W86256005 title "Sell It or Rent It? Our Spreadsheet Can Help You Decide What to Do with a Former Residence" @default.
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