Rent It or Sell It? The Math Austin Homeowners Should Run Before They Move
Three numbers decide whether to rent the house or sell it:
how much untaxed gain is sitting in it,
what the property costs to carry once it stops being your homestead, and
what your equity would earn if you took it out.
Most homeowners answer this on feel. The feel is usually wrong in one specific direction - toward keeping a house that does not pay its own way.
What is the capital gains clock, and when does it run out?
This is the number that should be run first, because it is the only one with a hard deadline. Under Internal Revenue Code Section 121, you can exclude gain on the sale of your principal residence if you owned and used it as your principal residence for periods aggregating two years or more during the five-year period ending on the date of sale. The exclusion is $250,000 for a single filer and $500,000 for joint filers where either spouse meets the ownership test and both meet the use test. See IRS Publication 523. The two years do not need to be consecutive.
Now the part almost every article gets wrong. Section 121(b)(5) says gain allocable to periods of nonqualified use after 2008 is not excludable. That sounds like renting the house destroys your exclusion. It usually does not - because of Section 121(b)(5)(C)(ii)(I), which provides that nonqualified use does not include any portion of the five-year period that falls after the last date the property was used as the taxpayer's principal residence.
In plain terms:
Live in it, then rent it, then sell within the window. The rental period is generally not non-qualified use. The exclusion is generally preserved, subject to depreciation recapture.
Rent it first, then move in, then sell. The earlier rental period is nonqualified use, and your exclusion is reduced proportionally.
So an Austin homeowner who lived in the house for the last two years and rents it out has, roughly, three years of runway before the two-of-five test fails. Miss it and the entire gain becomes taxable. On a house bought in 2016 for $300,000 and worth $575,000 today, that is $275,000 of gain that goes from fully excluded to fully taxable because of a calendar.
Two caveats worth stating plainly. Depreciation taken during the rental period is not covered by the exclusion - Section 121(d)(6) carves it out, and it is recaptured at a maximum 25% rate per IRS Topic 409. And this is tax law applied to your specific facts. Confirm every bit of it with your CPA before you decide.
What does the house actually cost once it stops being your homestead?
Converting to a rental changes your carrying cost in a way most owners do not price in until the tax bill arrives. You lose the homestead exemption and the 10% appraisal cap. Texas Tax Code Section 23.23 limits annual appraised-value increases to 10% and applies only to a residence homestead. The homestead exemption itself requires owner occupancy. And the school-district exemption is now larger than it has ever been - Texas Proposition 13, approved November 2025 with 79.41% of the vote, raised it from $100,000 to $140,000 retroactive to tax year 2025.
At the Austin ISD rate of 0.9252 per $100, that $140,000 exemption is worth about $1,295 a year to an owner-occupant. Convert to a rental and it is worth nothing. If your appraised value has also been sitting under the 10% cap for several years, uncapping it can move your tax bill up in a single cycle.
Your insurance changes too. A landlord DP-3 dwelling policy typically prices 15% to 25% above a comparable HO-3. Against a Texas average homeowners premium of $3,291 in 2024 per TDI-sourced reporting, that is a meaningful increase - and carrying an owner-occupied policy on a tenant-occupied house risks a denied claim.
What is your equity actually earning?
The line owners skip.
Suppose the house is worth $575,000 with $200,000 owed. That is roughly $340,000 of equity after selling costs. Ask what that $340,000 earns as a rental: if the property nets $600 a month after all real expenses, that is $7,200 a year on $340,000 of trapped capital - a 2.1% return on equity, before appreciation and before your own time.
Appreciation may well justify it. But it should be an argument you make deliberately, not a default. The Austin metro median sale price was up 1.0% year over year in July 2026 per Unlock MLS, and the City of Austin median was down 1.4%. Nobody in this market should be underwriting on the assumption of fast appreciation, and no honest broker will promise you any.
When does keeping it clearly win?
Renting is the better answer more often than the numbers alone suggest, especially when:
You are leaving Austin but might come back. Selling and rebuying costs roughly 8% to 10% round trip. If your horizon is two to four years, holding usually wins even at slightly negative cash flow.
Your mortgage rate is well below current rates. A 3% note on a $375,000 balance is an asset in itself. You cannot buy it back.
The house covers its costs. If rent clears the full carrying number, you are being paid to hold an appreciating asset and reduce principal.
You are inside the Section 121 window with a large gain and no need for the cash. You can rent for a couple of years, watch the market, and still sell inside the exclusion if you decide to.
When does selling clearly win?
Selling is the better answer when:
You are approaching the end of the two-of-five window with a large untaxed gain. The exclusion is worth more than two years of marginal cash flow, and it does not come back.
The house needs significant capital work. A roof and HVAC before lease-up is $20,000 you will not fully recover in rent.
You need the equity. Down payment on the next house, debt, a business. Trapped equity earning 2% is not a plan.
You do not want to be a landlord. This is a legitimate reason and it does not need a spreadsheet. Texas landlording carries real legal exposure - security deposit rules with treble damages under Property Code Section 92.109, screening notice requirements under Section 92.3515, habitability duties. Doing it badly is expensive.
The order to run this in
Get a current value. Not an automated estimate - a broker price opinion from someone who has sold in your ZIP code this year.
Get a current rent estimate for your actual house. Metro medians will mislead you by hundreds of dollars in either direction.
Pull your appraisal notice and calculate the non-homestead tax bill. Take the assessed value times your full combined rate, with no exemptions.
Ask your CPA about your Section 121 position and your basis. Before you convert, not after.
Compare return on equity against the alternatives, including simply doing nothing else with the money.
Amplify Property Group services on both sides of this - we list homes for sale and we manage rentals - which means we have no unbiased, and have no structural reason to favor either answer. If you want the rent side of the calculation, try our free rental analysis. If the answer turns out to be sell, we can help.
Frequently asked questions
Should I rent out or sell my house in Austin?
Sell if you have a large untaxed gain and are approaching the end of the two-of-five-year window for the capital gains exclusion, if the house would not cover its own carrying costs, or if your equity would earn more elsewhere. Rent if you are inside the exclusion window and can wait, if the property covers its costs, or if you plan to return to Austin.
How long can I rent my house before I lose the capital gains exclusion?
Under IRC Section 121 you must have owned and used the home as your principal residence for at least two of the five years ending on the date of sale. If you lived in it two years and then rented it, you generally have three years of rental before the exclusion is lost. Under Section 121(b)(5)(C)(ii)(I), rental periods after you stop using it as a principal residence are not treated as non-qualified use, so the exclusion is generally preserved within that window.
How much rent does my Austin house need to justify keeping it?
At minimum, rent must cover your mortgage principal and interest, property taxes at the non-homestead rate with no homestead exemption, landlord insurance, HOA dues, management, and reserves for vacancy, repairs and capital items. In the City of Austin, taxes and insurance alone commonly total $1,000 to $1,100 a month on a $450,000 property.
Will my property taxes go up if I rent out my Austin home?
Yes, typically. You lose the homestead exemption and the 10% annual appraisal cap under Texas Tax Code Section 23.23 once the property is no longer your residence homestead. The school-district homestead exemption rose to $140,000 under Texas Proposition 13 in November 2025, which makes the gap between an owner-occupied and a rented property larger than it used to be.
Do I owe tax on depreciation if I rent my house and then sell it?
Yes. Depreciation taken while the home was a rental is recaptured as unrecaptured Section 1250 gain and taxed at a maximum 25% rate, and it is not covered by the Section 121 exclusion. Recapture applies to depreciation allowed or allowable, so it is owed even if you never claimed the deduction. Discuss this with a CPA before you convert.
Is 2026 a good time to sell a house in Austin?
The Austin-Round Rock-San Marcos metro median sale price was $435,000 in July 2026, up 1.0% year over year, with 4.7 months of inventory, per Unlock MLS. The City of Austin median was $577,000, down 1.4%. That is close to a balanced market: sellers are not commanding premiums, but homes are moving, with a median of 52 days on market per Redfin.
About Amplify Property Group
Amplify Property Group, LLC manages single-family rentals across the Austin metro, including Austin, Round Rock, Cedar Park, Leander, Georgetown, Pflugerville, Hutto, Manor, Buda, Kyle, Lakeway, Bee Cave, Dripping Springs, and San Marcos. We are a licensed Texas real estate brokerage, TREC License #9015811. Owners can request a free rental analysis or read more on our property owners page.
This article is general information for Austin-area property owners. It is not legal, tax, or investment advice. Tax rates, statutes, and market conditions change; verify current figures with the appraisal district, your CPA, and your attorney before acting. Amplify Property Group, LLC does not guarantee any level of rent, return, occupancy, or appreciation.