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By James G. Dibbini & Associates, P.C.,
570 Yonkers Avenue, Yonkers, NY 10704 - (914) 240-8270
With today’s real estate market, many homeowners are considering holding onto their property and renting it out instead of selling. While this can be a smart financial move, there are important legal, tax, and liability considerations that should be carefully evaluated before becoming a landlord.
1. Capital Gains Tax – The “2 Out of 5 Year Rule”
If your home has been your primary residence, you may qualify for a significant capital gains tax exclusion when you sell:
- Up to $250,000 (single)
- Up to $500,000 (married couples)
However, to qualify, you must have lived in the home for at least 2 of the last 5 years before the sale.
Why this matters:
If you convert your home into a rental and hold it too long, you may lose or reduce this tax benefit. Timing is critical, and many homeowners unknowingly give up this advantage.
2. Personal Liability Exposure
Renting out property in your personal name can expose you to significant personal liability, including:
- Slip-and-fall injuries
- Claims related to property conditions
- Potential exposure under New York’s landlord-tenant and labor laws
Solution: Many property owners consider placing the property into an LLC to help shield personal assets. However, this must be done carefully to avoid issues with:
- Existing mortgages
- Insurance coverage
- Tax implications
3. Insurance – Your Current Policy Is Likely Not Enough
A standard homeowner’s policy typically does not cover rental activity.
Before renting, you should:
- Convert to a landlord policy
- Consider umbrella liability coverage for additional protection
Failing to do so could leave you uncovered when you need it most.
4. Lease Agreements & Tenant Laws
New York has become increasingly tenant-protective, and compliance is essential.
A properly drafted lease should address:
- Security deposit laws
- Notice requirements
- Rent and renewal terms
- Maintenance responsibilities
A poorly drafted lease can lead to:
- Delays in eviction
- Financial loss
- Legal disputes
5. Ongoing Landlord Responsibilities
Becoming a landlord also means:
- Maintaining the property in a safe condition
- Responding to repair issues
- Understanding local housing requirements
- Properly reporting rental income and deductions
Planning Ahead Is Key
Renting out your home can be a great opportunity - but only if it is structured properly from the beginning.
Before making a decision, you should consider:
- Your long-term plan (sell vs. hold)
- Tax implications of converting to a rental
- Liability protection strategies
- Proper lease and compliance requirements
James G. Dibbini & Associates, P.C.
570 Yonkers Avenue
Yonkers, NY 10704
(914) 240-8270
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