Jeni VanOrnum | Real Estate Insights & Education

Understanding tax implications helps move-up buyers make informed decisions. I’m Jeni VanOrnum, your Douglas County real estate agent, explaining the tax differences between selling and renting your current home in 2025.

Tax Benefits of Selling Your Primary Residence

When you sell your primary residence, you can exclude up to $250,000 in capital gains ($500,000 for married couples filing jointly) if you’ve lived in the home as your primary residence for at least 2 of the last 5 years. This is a significant tax advantage that many Douglas County homeowners benefit from.

Example of Primary Residence Exclusion

If you bought your Castle Rock home for $300,000 and sell it for $450,000, you have $150,000 in capital gains. As a married couple, you pay zero taxes on this gain if you meet the residency requirements. This exclusion can only be used once every two years.

Tax Implications of Converting to Rental

Once you convert your primary residence to a rental property, you lose the ability to use the full primary residence capital gains exclusion. When you eventually sell, you’ll pay capital gains tax on appreciation that occurred after the conversion, plus recapture depreciation you claimed.

Rental Property Tax Benefits

Investment properties offer ongoing tax deductions including mortgage interest (fully deductible on rentals, unlike the $750,000 cap on primary residences), property taxes, insurance premiums, repairs and maintenance, property management fees, HOA fees, utilities you pay, advertising and tenant screening costs, and depreciation (1/27.5 of the building value annually).

Depreciation Recapture

Depreciation provides tax benefits during ownership but must be “recaptured” (taxed at up to 25%) when you sell. If you claim $50,000 in depreciation over 10 years, you’ll owe up to $12,500 in depreciation recapture tax when selling.

1031 Exchange Option

If you keep your first home as a rental and want to upgrade your investment portfolio, you can use a 1031 exchange to defer capital gains taxes by purchasing another investment property. This strategy allows wealth building without immediate tax consequences.

Passive Activity Loss Limitations

Rental real estate is generally considered passive activity. If you actively participate in management, you can deduct up to $25,000 in rental losses against your ordinary income (if your adjusted gross income is under $100,000). This deduction phases out at higher income levels.

Consult a Tax Professional

Tax situations are complex and individual. Work with a CPA familiar with real estate taxation to model your specific scenario.

Make Tax-Informed Decisions

Ready to understand the tax implications of selling versus renting your Douglas County home? Contact Jeni VanOrnum today for guidance and tax professional referrals.