Airbnb hosts declared #airbnbust with high vacancy and loss of income on their short-term rentals. Here's 3 options for restoring passive income on your home.

3 Ways To Restore Lost Income When An Airbnb Becomes an "Airbnbust"

Has the shine worn off the short-term vacation rental market? A glut of inventory has sent vacancy rates soaring in recent months (even during the Super Bowl!), leaving homeowners declaring an “airbnbust” with empty homes and declining profits. 

Meanwhile there are people all over the country crying out for long-term rental options as rents skyrocket and vacancy rates plummet. So much so that many cities are cracking down on the practice by limiting or even banning short-term rentals in some areas. 

But homeowners are within their rights to look for passive income to help support their financial future — so what’s the balance? What are the best options for restoring passive income if you shift away from vacation rentals or Airbnb? 

3 ways to restore passive income for your short-term rental home:

Switch your house to a long-term rental home

Move into the home and start renting a room or add an ADU

Option #1: Switch your house to a long-term rental home

Let’s start with the most obvious option: long-term renting. Long-term renting has the same passive income opportunity as a short-term rental — but often without the extra headaches. 

It’s true that a per-month rate won’t attract the same per-night income as Airbnb. But with rising inflation and property values in recent years, more Americans are feeling locked out of home ownership so they are renting for longer. Even in areas where rents have dropped recently, they are coming off such high increases that most homeowners are still earning much higher rental income than before. 

This means it’s a great time to hold an investment property. If you don’t intend to use the home during the year, having a long-term lease agreement on your home may be more profitable than a short-term rental, even at a lower per-month rate. Especially if that high per-night rate is leaving the home vacant. 

Some of the benefits of taking your home off vacation rental platforms and finding long-term residents include:

Your income will be more predictable, with less vacancies and one person/family living in your home for 12-months or longer

Long-term rentals are in high demand and attractive rental rates are locked in for the lease term

Residents are vetted and screened, helping you to place responsible people in your home who will treat it as their own

With the right management, income can be truly passive, with no need to play customer service representative for holiday-makers

It’s a more ethical choice, with your home providing a stable living environment for people who don’t want to, or can’t, buy their own home

You can access to favorable tax breaks and capital gains depreciation

No need to furnish the house or worry about cleaning costs and replacing amenities

No utility costs, as residents will pay for these unless it’s included in their rent

Lower management fees, usually around 8 - 10% (compared to 25-40% for short-term rental management) 

There’s less local ordinance hoops to jump through


No need to collect or pay Transient Occupancy Tax

Read More: Short-Term Rental vs. Long-Term Rental: The Pros and Cons

Not convinced? Let’s take a look at the San Diego market. After the introduction of the Short-Term Rental Ordinance (STRO) that has capped the number of vacation rentals, you may wonder if the long-term vacancy rate has increased or the rents have dropped. After all, many homeowners will need to relist their homes at the same time if they can’t get an STRO license. 

Neither has occurred. The average rental rate has increased between 2-12% YoY in San Diego for 1-4 bedroom homes. As of January 2023, Belong’s residential network sees an average rate of $3,526.15 per month for single-family homes and condo rentals in the San Diego market. The US Census also reports that the vacancy rate in San Diego is still a low 3.2%, down from 3.7% in Q1 2022. 

Interested in making the switch to a long-term rental? Belong can help! With guaranteed rent, great long-term residents and innovative financial options that protect your cash flow, we can help restore your passive income and achieve your financial goals. Learn more here.

Option #2: Move in and rent out a room or add an ADU

If renting your entire home is no longer profitable on Airbnb, another option is to move in yourself and rent a single room or accessory dwelling unit (ADU). You can either advertise for a full-time roommate or relist a single room on Airbnb, rather than the entire house. 

This will ensure you’re not paying costs on a home while it sits empty and gives you full access to the home whenever you need it. Without the need to pay costs on an empty house, you can restore your passive income and use the extra cash to pay your home expenses while living there.

Of course, sharing your home is not for everyone. Not everyone will have a space where they can maintain privacy, which is where an ADU is a great option. Many local governments have made it easier to add an ADU, even incentivizing ADU builds with a grant program, as they add much-needed living spaces to the city. 

Option #3: Sell the home and reinvest the profits

If you’re stuck with an unprofitable home and don’t like the idea of long-term renting, it may be time to sell up. Of course, this option won’t immediately restore your passive income. Before putting your home on the market, speak to a financial advisor about the value of your home and how to reinvest any profits so that the money can continue building toward your financial goals. 

Be sure to account for capital gains tax implications, which will be imposed on the appreciation of an investment home when it’s sold. 

It is also worth noting that single-family rentals (SFRs) have provided nearly identical returns to the stock market — but with far less volatility. This makes owning a rental property an attractive investment option to build or diversify your portfolio, so you may want to consider hanging onto the home if you can’t get the price you want!

Belong is an alternative to both Airbnb and traditional property management

Many homeowners are attracted to Airbnb or the short-term rental market because online platforms make everything so simple and tech-forward. They make traditional property management look antiquated. Which is why Belong has ditched the property management model to offer a better alternative to both — an option where you don’t need to manage everything on your own, nor put your home at the whim of travelers. 

If you’re weighing up relisting your home as a long-term rental with Belong, here are a few extra line items to jot down in the ‘pros’ column:

Guaranteed rent — get fixed, predictable income, regardless of when your residents pay

A dedicated 24/7 concierge service available to both you and your residents, not just a an option to log emergencies 

Transparent, inclusive fees, with no sneaky extras like setup costs and lease renewal charges

Rental pricing optimization, based on real-time demand for your home

Protection against evictions with up to $15,000 of coverage against legal fees

Cutting-edge marketing and video tours, available at no extra cost

Innovative financial solutions for managing cash-flow on your terms, even covering homeowners during vacancies — or providing a full year’s rent upfront 


Think your vacation home belongs with us as a long-term rental? Learn more and find out if you’re eligible here.

Poor accounting can erode rental cash flow. These 5 steps will help first-time landlords establish good accounting and bookkeeping for a profitable rental home.

How to Manage Accounting as a First-Time Landlord: 5 Best Ways

If a pipe in your bathroom was leaking, you’d fix it. But what if your rental home was leaking money? Would you even notice? That’s exactly what happens to rental properties without good bookkeeping and accounting in place. From missing tax deductions to unexpected maintenance costs, there are many ways that poor accounting can eat into your rental cash flow.

As a first-time landlord, you have an opportunity to put good systems in place to ensure these 'leaks' never start. This article will cover five steps that first-time landlords can take to set up good accounting practices from the get-go.

Disclaimer: We don’t enjoy using the word ‘landlord’. We prefer to refer to members in our network as homeowners, not landlords, since we’re on a mission to upend and redefine the traditional landlord-tenant relationship. That said, there’s a big difference between residential ‘homeowners’ and ‘landlords’ when it comes to finance and tax matters, so in some instances we have had to stick to the old term for owners of rental homes. This article helps to highlight accounting and bookkeeping practices that rental home owners should be aware of, but should not be considered financial advice. Please speak to an accountant or financial advisor to discuss your individual situation and eligibility before filing any tax documentation.

How to establish rental property bookkeeping and accounting:

Set up separate bank accounts to manage your rental income and expenses

Establish a bookkeeping system, tracking itemized costs

Establish a budget to prepare for upcoming expenses

Get your documentation and recordkeeping in good order

Speak to an accountant or research tax rules and regulations to prepare for tax season

Step 1: Set up bank accounts for your rental property

The IRS treats rental homes like a business, so from a financial perspective, you should too. Even if you once lived there, when you put it on the rental market, it’s time to create a separate identity for the home. This means a fresh bank account too. 

Keeping your personal and rental accounts separate will provide clarity, simplify your record keeping (especially during tax season) and make reconciliation much easier.

If you decide to expand your investment portfolio or inherit a house that you rent out, be sure to repeat this process and open a new account for each home to avoid confusion in your accounting.

Step 2: Decide how and where you will track all itemized expenses

To manage your bookkeeping and finances effectively, you’ll need to decide how you’re going to track income and expenses. You may want to create a spreadsheet or use accounting software to track everything related to your rental property. 

There are companies that promote specific ‘accounting software for landlords’, but any accounting software can work for managing your rental property finances. So if you’re already familiar with something like Quickbooks, Xero or Zoho — stick with what you know. Some software can be linked to bank accounts to automate bookkeeping, saving you even more time. 

It’s important to choose something that you feel comfortable with, because if you don’t use it, it won’t help. Set time aside every week or month to ensure your records are up to date, especially if you choose to self-manage your rental property. Even if you use an accountant, good bookkeeping will ensure that important deductions aren’t being overlooked. 

Pro Tip: If your home is taken care of by Belong, you can access records easily within the Belong app. Income, expenses, maintenance, insurance — it’s all in the one place. You’ll also get a statement at the end of the financial year to help you during tax season. Plus there’s the added bonus of the rental income being guaranteed every month, which makes income tracking ridiculously easy. 

Step 3: Establish and track your budget 

Good accounting is more than tracking income and expenses — it’s also about good financial management. When setting up your accounting system, you should also establish a budget for your rental home. 

When planning the budget for your rental home, be sure to include line items for the following:

Professional services — such as Belong, a property management company,  lawyer, accountants, or any other professional contracted to assist on the home 

Travel costs if you are visiting the home yourself

Any utilities or services the resident doesn’t pay for 

It’s a good idea to set aside around 1-4% of your home’s value for maintenance costs, so you’re not caught out if something goes wrong. You should also plan for any capital improvements or major expenses that are coming up, depending on the condition of the home. For example, if you know that the roof on your home is 30 years old, it’s more likely that you’ll need to have money for repairs or replacement. Capital improvements are taxed differently to essential repairs, so it’s essential to distinguish between the two in your accounting. 

These guides can help you plan your budget and anticipated costs on your rental home:

How To Do An Accurate Rental Property Cash Flow Analysis

How Much Will Maintenance Cost Each Year For My Rental Property?

7 Common Rental Property Repairs and How Much They'll Cost You

How to Prepare Your House For the Rental Market

Property Management Fees: How Much Do Property Managers Charge?

Step 4: Get your documentation and recordkeeping in good order

Whether you keep your documents within an app, a spreadsheet, or even a shoebox (no judgment!) — the important thing is to have them and know where to find them. Set up a system so that your paperwork is always available when you need it.

For example, did you know that if you want to take out a loan on your rental home or even put it up for sale, you’ll be asked for a rent roll? If your recordkeeping is up to date, supplying this won’t be a hassle. If you’re not, expect to spend a lot of time sifting through transactions and emails. 

What about if there’s a dispute from a resident? Or an insurance claim against you? Good recordkeeping considers all documentation, not just expenses. Start with this list of 9 important documents you need for a rental home.

Step 5: Hire an accountant (or do lots of homework!)

One of the main reasons you will diligently keep these records is to optimize your investment and make the most of generous tax deductions and strategies available to you now that you’re officially a “landlord”. The best way to do this is to enlist professional help, by hiring an accountant to manage your finances and tax submissions, putting the records to work for you. 

If you prefer a DIY approach, be sure to do plenty of research on the tax implications of owning a rental home. There is no simple advice or one-size-fits-all approach to taxation. The way you’re taxed will be different depending on an array of factors from how many hours you spend managing the home to whether you ever use the home for personal use. 

Belong simplifies bookkeeping and accounting for landlords

Belong makes managing the finances on your first rental property infinitely easier, because you always know where you stand. Your rental income is consistent (and guaranteed), expenses are transparent with no hidden costs (and deductible too!), and every year you’ll get a statement for you or your accountant to use at tax time.

Belong homeowners also enjoy access to innovative financial products that help keep you cash flow positive. Surprise expenses won’t take away your financial freedom, because you can split the cost of things like maintenance and repairs over the term of your lease, with an attractive annual percentage rate (APR). 

To find out more, do the math, or see if your home is eligible, check out belonghome.com/homeowners.  

Landlords who are prepared for tax season will find tax time a lot easier and save money in the process. Get the Landlord's 2023 Tax Prep Guide to learn more.

Spring into Tax Season: The Ultimate 2023 Tax Prep Guide for Landlords

As we countdown the days until warmer weather arrives there is a less exciting prospect on the horizon that comes with spring: the federal tax deadline. 

There’s a lot to get your head around as a landlord when it comes to tax season, but those who are prepared and stay on top of their game will find it a lot easier — and save money in the process. 

Disclaimer: We don’t enjoy using the word ‘landlord’. We prefer to refer to members in our network as homeowners, not landlords, since we’re on a mission to upend and redefine the traditional landlord-tenant relationship. That said, there’s a big difference between residential ‘homeowners’ and ‘landlords’ when it comes to tax matters, so in some instances we have had to stick to the old term for owners of rental homes. This article helps to highlight things that rental home owners should prepare for, but should not be considered financial advice. Please speak to an accountant or financial advisor to discuss your individual situation and eligibility before filing any tax documentation. 

New and noteworthy tax changes for landlords

Each year brings new bills and regulations, which means changes to taxation rules. As the owner of a long-term rental property, here are some changes that are worth getting across to prepare for the 2023 tax season:

Federal income tax brackets are changing for 2023

New initiatives bring tax incentives for energy-efficient homes

The IRS has tax relief for disaster situations

1. Federal income tax brackets are changing for 2023

In 2023, federal income tax brackets are changing to account for high rates of inflation. While we can’t provide personalized advice for your exact tax situation, if you want to know how the changes will impact your return, we have prepared an article on the new rates here. 

2. New initiatives bring tax incentives for energy-efficient homes

With new green initiatives and Residential Clean Energy tax credits announced last year, many homeowners are wondering what extra deductions they could claim for energy-efficient improvements to a rental property. The bad news is that these credits don’t apply to rental homes. 

That said, if you are making improvements to the home or upgrading the appliances, you can still qualify for depreciation on these upgrades and/or receive local state incentives — but not the federal tax credits. If you use the home for part of the year, you can claim partial credit too (e.g. if you live in the home for half of the year, you can claim 50% of the tax credit). 

3. The IRS has tax relief for disaster situations

2022 was a year of wild weather and the IRS has tax relief provisions in place for homeowners with property in areas that are hit by disaster, such as a hurricane, tornado, flooding, earthquake, landslide, or wildfire. 

If you have faced a sudden damage (not deterioration over time, even if due to weather) to your rental home, the loss should be tax deductible. How much and what you can claim depends on how much of the home was destroyed during the incident and how much was covered by insurance claims. You can only claim the loss (or partial loss) of the property, not the cost to repair, replace, or clean up any damage. The cost of restoring the home is considered capital improvement and falls under depreciation. You can learn more about tax relief for disasters on the IRS website or this handy legal guide from NOLO. 

Preparing for your tax return when you own a rental property

Tax season has officially started, with the 2023 filing deadline set at Tuesday, April 18. If you request an extension, you will have until Monday October 16, 2023 to file (but your request must be submitted by the April deadline).  

It’s always a good idea to leave tax filing to an accountant, who can help maximize your tax return and reduce your liability each year. But whether you go it alone or enlist professional help, you’ll still need to be prepared and keep accurate records of everything relating to your rental property. 

Here’s 5 steps to help you prepare for filing before the deadline — and get a head start on your bookkeeping for next year:

Determine if you qualify for ‘active participation’ or ‘passive activity’

Tax prep step #1: Determine if you qualify for ‘active participation’ or ‘passive activity’

You may have heard that there are tax benefits to taking a DIY approach to rental property. This is true, if you are self-managing the home, you may qualify as having ‘materially participated’ as a real estate professional. This allows your rental property involvement to receive non-passive tax treatment. Non-passive income means you can use any losses to offset other types of income, and you won't be subject to the 3.8% tax that applies to net investment income.

But to benefit from this approach, you need to show that you have spent 500 hours or more managing your property. This route isn’t for homeowners looking for passive income to build their wealth. Even if you hire an individual to help, you will need to consider extra legal and tax implications such as payroll. 

If you’re not considered a real estate professional, owning a rental home is considered a 

‘passive activity’ by the IRS. You won’t miss out on tax deductions, but any losses will carry forward until you generate passive income or sell the home.

There is a middle ground between passive income and becoming a real estate professional is known as “active participation”. The IRS takes into account major decisions about your investment, such as approving new residents and even the work that goes into appointing a property management company. If you actively participate in these decisions, you could deduct some (up to $25,000) of your passive losses, even if a company like Belong handles all the hard work. There are income thresholds and caps on deductions here so you will need to speak to an accountant to determine if you qualify for this. 

Tax prep step #2: Get your documents in order

Regardless of your level of participation, the single-most important part of tax preparation is documentation. You’ll need records of everything relevant to your rental home. 

Records of any income earned from the property including rent, any late fees paid and interest earned

A mortgage statement showing how much interest you paid

Receipts for any expenses that the tenant has not covered, such as repairs and maintenance to the home

Records and expenses for professional services hired related to advising on your property, including accounting, and legal fees

Records and expenses related to management of your property, either itemized as a self-managing landlord or the expenses of service providers such as Belong or a property management company

The cost of any capital improvements made to the home

Records of property taxes paid on the home

Records and cost of insurance premiums held for the home

If your home is loved by Belong, you’ll always have full visibility over your income and expenses through the Belong app. Each year we'll send you a statement for you or your accountant to work through, plus your concierge is on hand to assist if you need to clarify any information around earnings or charges. And did we mention that Belong fees are tax deductible?

Tax prep step #3: Understand and report your income 

If you're a sole proprietor or a single-member LLC, you'll report your rental income and expenses on Schedule E of your personal tax return (Form 1040). If you're an LLC or a partnership, you'll file a separate tax return for your business, and your rental income and expenses will be reported on that return.

Most individual taxpayers report on a cash-basis, which means you will need to report rental income to the IRS for the year when you receive it, not when it was earned. So for example, when it hits your bank account. 

If your home is looked after by Belong, you will receive guaranteed rental income and may receive rent in advance, either monthly or an entire year upfront, regardless of when your residents have paid. In these instances, you will need to declare the income when you received it, even though the rent is covering an advanced period that won’t have been completed at the time of filing. 

Other types of income you may need to report:

If your tenant pays you for any of your expenses, the payments are counted toward rental income. If they are eligible expenses, you can include the amount you paid as deductions too.

If your tenant pays you to cancel a lease, the amount you receive is considered rent. Include the payment in your rental income in the year you receive it regardless of your method of accounting.

If your tenant pays with something other than money, you need to record the fair market value as income. This would only apply to homeowners who self-manage a property and have a direct agreement with their resident, such as providing two weeks rent in exchange for redoing the gardens or replacing a fence. 

If you receive a security deposit payment, rather than returning it at the end of a lease. Sometimes security deposits are used in lieu of a final rent payment or to cover breaches and damage to the home. Include this as income when it’s received, but don’t include a security deposit if you’re holding it with the intention of returning it to a tenant at the end of their lease. 

Spring into Tax Season: The Ultimate 2023 Tax Prep Guide for Landlords to Maximize Deductions

Belong studied data from the Census Bureau's 2021 American Housing Survey to learn how many homeowners in 15 cities are upgrading energy efficiency.   

How Homeowners in 15 Major Metros are Investing in Energy Efficiency

Homeownership and renovations often go hand in hand. Even if you choose a move-in ready, recently updated home, the time will come that you need to make an update—either to fix an urgent problem or to tweak your space to be more to your liking.

Energy efficiency is a growing reason for renovations: A 2020 survey, released in 2021, found that more than 70% of U.S. homebuyers want at least one key energy-efficiency feature, such as Energy Star-rated windows or appliances, efficient lightbulbs, and triple-pane insulating windows.

In line with that trend, the Census Bureau's 2021 American Housing Survey found that among respondents nationwide, 27.5% of their home improvements were made to increase energy efficiency—the most common reason, followed by increasing accessibility for the elderly or disabled and preparing a home for sale. In this survey, homeowners were asked if they had done any home remodeling or major improvements, excluding cosmetic updates like painting. Energy efficiency upgrades are efforts made by homeowners to reduce their energy consumption or energy loss, such as replacing appliances or adding insulation.

Belong broke down the data from the survey by focusing on 15 major metropolitan areas to discover how homeowners across the nation are investing in energy efficiency. Metropolitan areas were ranked by the share of renovated homes that were upgraded for energy efficiency over the previous two years. Each metropolitan area includes the main city as well as its surrounding towns and suburbs.

Of the 15 metropolitan areas on this list, the ones where homeowners made the largest share of energy-efficient improvements are located on the coasts, often in areas that are already facing the effects of climate change. Many states like Massachusetts and California also offer incentives and rebates to homeowners who make energy-efficient upgrades.

Of course, energy-efficient upgrades likely look different in various parts of the country. Homeowners in colder areas like Boston or Philadelphia might save money on the heating bill by improving their home's insulation, while residents of sunnier cities like Phoenix or Los Angeles might choose to invest in solar panels.

Read on to discover just how many homeowners in each major metropolitan area are investing in their home's energy efficiency.

- Total home improvement projects over the last two years: 1.1M

- Share of energy-efficient improvement projects: 18.5%

PROPERTY MANAGEMENT FOR HOMEOWNERS IS BROKEN. BELONG INSTEAD.

Access a streamlined approach to property management for homeowners including guaranteed rental payments, 24/7 local support, and maximized rental value.

- Total home improvement projects over the last two years: 812.2K

- Share of energy-efficient improvement projects: 21.8%

- Total home improvement projects over the last two years: 922.4K

- Share of energy-efficient improvement projects: 23.4%

- Total home improvement projects over the last two years: 564.2K

- Share of energy-efficient improvement projects: 25.4%

COMPREHENSIVE RENTAL PROPERTY MANAGEMENT IN SEATTLE

Learn more about how our Seattle rental property management team can help you get rental payments on time every time.

- Total home improvement projects over the last two years: 1.4M

- Share of energy-efficient improvement projects: 28.0%

- Total home improvement projects over the last two years: 2.0M

- Share of energy-efficient improvement projects: 28.8%

- Total home improvement projects over the last two years: 749.0K

- Share of energy-efficient improvement projects: 29.3%

- Total home improvement projects over the last two years: 781.4K

- Share of energy-efficient improvement projects: 30.1%

- Total home improvement projects over the last two years: 948.8K

Inheriting property can have tax implications depending on what you do with it. Here are some tax considerations for inheriting property in the US.

Tax Considerations for Inherited Properties: What You Need to Know

If you inherited a property in the last twelve months, you might be wondering about what the tax considerations are for the upcoming tax season.

Most inheritances aren’t considered income for federal tax purposes. What happens next is where it becomes less straightforward. Whether you sell the house, move in, or rent it out will change the tax implications for the property.

In this article, we will look at the tax considerations for inherited property based on federal and state taxes, as well as whether you choose to keep or sell the home. 

Tax considerations for inherited properties when the estate is transferred

There are four main taxes that could apply to an inherited property as part of a transfer of estate:

Federal estate tax is a tax on the transfer of property at death, taken from the estate. It won’t apply to most estates with a single property, because estates valued at less than $12million are excluded. But if your inheritance includes valuable assets, it may exceed the exclusion amount and need to be filed in an estate tax return. 

The exclusion amounts change year-to-year to account for inflation and are currently:

The tax only applies to the value above the exemption amount, so even if the estate was worth $13million, 28% tax would owe on $80,000. The rules can be complex and there are strategies for reducing what you owe as well as exemptions for surviving spouses, so it’s important to speak to a professional about the best approach for your situation. 

If your recently deceased loved one was a resident of Washington, Oregon, Minnesota, Illinois, Maryland, Vermont, Connecticut, New York, Rhode Island, Massachusetts, Maine, Hawaii and Washington, D.C, their estate will be subject to state estate tax. The tax at a state level applies regardless of whether the federal estate tax applies (a double-whammy for larger estates). 

Like the federal estate tax, there are exemption thresholds and varying rates of tax applicable depending on the value of the estate being transferred. These vary from state to state. To see the exemptions and threshold tables, plus forms and FAQs on localized estate tax, visit the link for each state below:

Six states in the US have a state-level tax on inheritance, which is different to an estate tax. 

Instead of a tax on the estate, as the recipient of an inherited estate, you will be required to file and pay the tax. 

The amount of the tax payable is based on the local state regulation, the relationship between the decedent and the beneficiary, and the value of the property being inherited. If the decedent was a resident of Iowa, Kentucky, Maryland, New Jersey or Pennsylvania, it’s worth getting professional advice on local inheritance tax. 

See the local state websites for more information and 2023 inheritance tax rates:

If you inherit a property or estate in Maryland, be aware that both an estate and inheritance tax apply. 

What happens if you inherit a home from a loved one during their lifetime? If you are fortunate enough to be given a home by someone before their passing, estate and inheritance tax rules won’t apply, but you could be subject to gift tax on transfers of property. The amount of tax is based on the value of the property being transferred. 

This could also apply if you buy a home for less than market value. For example, if your parents sold you a house for $1 or even $500,000 when the market value is worth $1.5million, this would be considered a gift for tax purposes. This tax is designed to stop wealthy individuals from finding loopholes to paying estate taxes by giving property away. 

The annual exclusion amount for gifts in 2023 is just $17,000 per individual ($34,000 for a couple) — significantly less than the estate tax thresholds. 

Tax considerations for inherited properties when the home is sold

If you inherit a property and don’t wish to move in, you may sell it to pay off your own mortgage or focus on other investments. In this instance, if the home appreciates (rises in value) between when you inherited it and when you sell, you will be subject to capital gains tax on the difference. This is because the inherited home is now considered an investment property, even if you haven’t sought to be a real estate investor. 

The key difference between paying capital gains on an investment home that you have bought vs inherited is the way the value of the home is calculated. When you buy a home as an investor, the home’s cost is the basis for which you need to calculate capital gains. If you inherit a home, the home’s cost is not based on the value the original owner paid for it, but on the market value at the date in which they died. 

This is good news for those inheriting a home. The market value will likely be much higher than the original price, reducing your capital gains tax liability.

If the market drops and you sell the home for less than it was valued at when you inherited it, this can be claimed as a loss with no capital gains payable. When you inherit a home, you should arrange for a current appraisal to ensure that the current market conditions and any home improvements are accounted for to to have a record of the fair market value. Tax applicable can also vary if you sell the home within a year of inheriting it, so it’s important to speak to an accountant or tax professional to find out what will be most beneficial in your circumstance. 

The only way to avoid capital gains tax on selling a property you have inherited is to move in and make yourself at home. There are generous tax exemptions for your primary residence, but you must have lived in the home for at least two out of the last five years — so it’s not a short-term option. You will also need to pay state property taxes and local levies for your new home. 

Tax considerations for inherited properties when the home is put on the rental market

If you don’t want to move into the home, selling is not the only option. Rental demand is high in the US in 2023 and you could achieve passive income from the home by putting it on the rental market.

A highlight of Belong reviews by our community members when asked why do they love renting with Belong.

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