I own a home that I am renting out through a property manager for a net gain of $150.00 per month. I have about 50k in student loan debt and owe about 50k on the home. The home would sell for 80k on today's market. I earn about 80k per year and support my children's education with 20k per year. The capital gains tax expiration date form me is June 2009. Should I sell the home and pay down my student loan debt? Or should I keep the home as an investment and try to pay principal payments in addition to my monthly student loan payments?
Please advise.
Thanks

If I understand your situation, you have about $30K in equity in the rental property, and you net $150/month profit after expenses (mortgage, real estate taxes, etc). So on your $30K investment you are making $1800/yr, for a 6% return. What interest rate are you paying on your student loans? If the interest rate on your loans is less than 6% it would seem you are better off keeping the house. Finally, what do you mean about a capital gains expiration date?

My understanding is that in order to not pay taxes on capital gains from sellling the home, I must have lived in it at least two of the past five years. That five year limit will end for me in June 2009 because I moved out of the home in June 2006. If I pay the capital gains taxes on the profit, 30k, then it will even further reduce my income from the property. My student loan interest rate is 9%. I got hurt by a consolidation loan during the Clinton era that I cannot get anyone to touch with a lower rate. Thanks for your response.

Well to be honest making 80 K, with a positive income coming in on rental property I don't see why you can't set up a budget to allow yourself to easily pay down the student loan, but considering it is at 9 percent you should be able to do some type of refi on it to get it under 5 fairly easy.

But I guess the question is, if today would you borrow money ( the 50K to buy another rental house to do the same, ) if you would not borrow the money to buy a rental house, then you don't need that one.
Also you are only makng 150 a month, if you ended up having to put a new central heat or a new roof on the home you could easy loose all of your profit for 2 years in one event.

So my advice, yes I would sell it, pay off that loan and as much of the student loan as I could. I would then tighten my budge and make a plan to pay off all the loan in a fe years.

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Originally Posted by jmarkmorgan

my understanding is that in order to not pay taxes on capital gains from sellling the home, I must have lived in it at least two of the past five years. That five year limit will end for me in june 2009 because I moved out of the home in June 2006.

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OK, I see. I assume you've been depreciating the property the last couple of years - that can affect the maximum exclusion that you're allowed to take against the capital gains, but that shouldn't be an issue for you. See Publication 523 (2007), Selling Your Home for info on how this affects your cost basis and the allowable exclusion. I think if it was me I'd sell the house before the June 2009 deadline, pay down some of the debt, and sleep better at night.