Q: My Mom has been a widow for 2 years. She now lives on Soc. Sec. ($420 per month), rental income ($400 per month) and about $125 monthly from an annuity. A couple of days ago, her tenant of 12 years gave notice that she is moving out. For tax purposes, the rental house is assessed at $36,000; there is no mortgage. The only expenses are the taxes ($600 per year) and periodic maintenance. The house was recently painted, new gutters and a new furnace were installed.
Should my Mom keep the property and find a new tenant (she would raise the rent to $500) or should she sell it and invest the proceeds? Could she get a return anywhere near the $400 to $500 per month rent?
ps: You’re a great Clark Howard replacement!
A: How much is the house worth? Let’s say the house is worth $120,000. She would sell the home, and after expenses probably have about $110,000. Invested at 5% in tax free municipal bonds, she’d clear about $5,000 per year, or about $416.67 per month.
But she’d no longer have to worry about maintenance, etc. and if she needed extra cash, she could sell some of her bonds.
But I don’t know what tax liability there might be. Has she depreciated the property? Is it considered an investment for tax purposes? Did she live there for 2 of the last 5 years?
It may be easier simply for her to rent the house and clear the $500 per month. Please consult a tax advisor for more detailed advice.
Jan. 1, 2004.