Ed 
If you lived in your house for two years and then moved out and rented it, you have about three years from move-out to sell it and still keep the capital gains exclusion on it, up to $250,000 of gain tax free (or $500,000 for a married couple filing jointly). So if the moving truck left in late 2023, your deadline is late 2026, which is basically now. That one date drives more decisions to sell rental property than anything else I see (and it sneaks up on people faster than they think right).
The rule comes straight from IRS Publication 523: you have to have owned and lived in the home for 24 months out of the 5 years before the sale. Do the math backwards and two years of living there plus three years of renting is the edge of the cliff. And the other half of the question, whether the house is even worth keeping as a rental, is something we can actually measure. We pulled every single-family lease and sale that closed in the MLS around Lake Travis over the last 12 months, and in the 18 neighborhoods with enough of both, a year of rent ran between 4.1% and 7.6% of what the same neighborhood’s houses sold for.
Here’s what I tell owners in this spot. Most people who rent out the house they moved out of try to keep it under three years, because once you go past that three-year mark you lose some of that tax savings. If you have a 3% mortgage and the rent covers everything, you might want to keep it a long time. If you’re not cash flowing, sell it before you hit three years out of the house. That’s most of the decision, and the rest of this post is how to figure out which one you are.
Signs it’s time to sell your rental property
Ok, lets start with the one that decides most of it. The rate on your mortgage.
Freddie Mac’s weekly survey had the 30-year rate at 7.32% as of October 22, 2026. If your loan on the rental is at 3%, you are holding something you can’t buy again. Same house, same loan amount, the payment is wildly different. Let me show you with round numbers on a house like a Sweetwater median, $695,000 value, $3,550 a month in rent (both straight out of our table below), and a $400,000 loan:
- At 3%, principal and interest on a $400,000, 30-year loan is about $1,686 a month.
- At 7.32%, the same loan is about $2,748 a month.
- Now lets say taxes, insurance, HOA, and a repair budget eat another $1,500 a month (plug in your own number, yours will be different).
- At 3% you’re about $364 a month to the good. At 7.32% you’re about $698 a month in the hole.
So the same house is a keeper for one owner and a slow leak for another. The rate decides it, not the house.
The second sign is cash flow after the debt, not before. A lot of accidental landlords look at rent minus mortgage and call it profit. But that number doesn’t have the property taxes in it, or the insurance, or the vacancy month, or the management fee. Run it with everything in and be honest with yourself (nobody’s grading this but you).
The third one is equity, and this is where people get stuck. In that example, $695,000 minus a $400,000 loan is $295,000 of equity sitting in the house. The question isn’t “is the house making money.” It’s “is $295,000 of my money earning enough in this house compared to anywhere else I could put it.” That’s a different question and a harder one to answer honestly when it’s your old house. Thaler’s whole thing in Misbehaving is the endowment effect, we value stuff more just because we own it, and a house you used to live in is about as owned as it gets.
And the fourth one: don’t count on appreciation to bail out a thin rental. The Travis County median sold price was $490,000 in September 2026 against $485,000 in September 2025, about 1% in a year, according to our MLS market data. It’s still 23% below the $640,000 peak from May 2022. That’s not a crash. But it’s not the run-up that made everybody feel smart in 2021 either, and if your plan needs the house to go up a lot to make sense, that’s a plan to rethink.
What your house earns as a rental, neighborhood by neighborhood
This is the table I wish every owner looked at before deciding. It divides the median monthly lease price in a neighborhood by the median sale price in that same neighborhood. That’s the rent-to-value ratio. Multiply by 12 and you get the gross yield, a year of rent as a percent of what the house would sell for, before a single expense.
| Neighborhood | Leases | Median rent | Sales | Median sale | Rent ÷ price (monthly) | Gross yield (yearly) |
|---|---|---|---|---|---|---|
| Lago Vista | 11 | $2,175 | 14 | $341,775 | 0.64% | 7.6% |
| West Cypress Hills | 10 | $3,500 | 30 | $563,486 | 0.62% | 7.5% |
| Tessera on Lake Travis | 20 | $2,448 | 51 | $425,000 | 0.58% | 6.9% |
| Highland Lake Estates | 26 | $2,150 | 86 | $389,500 | 0.55% | 6.6% |
| The Hills of Lakeway | 11 | $5,200 | 45 | $950,000 | 0.55% | 6.6% |
| Briarcliff | 13 | $2,900 | 31 | $550,000 | 0.53% | 6.3% |
| Apache Shores | 39 | $2,700 | 34 | $520,000 | 0.52% | 6.2% |
| Sweetwater | 59 | $3,550 | 98 | $695,000 | 0.51% | 6.1% |
| Provence | 18 | $3,999 | 56 | $800,000 | 0.50% | 6.0% |
| Rough Hollow | 18 | $4,450 | 61 | $895,000 | 0.50% | 6.0% |
| Falconhead | 23 | $3,800 | 51 | $800,000 | 0.48% | 5.7% |
| Lakeway (original sections) | 44 | $3,500 | 123 | $729,900 | 0.48% | 5.8% |
| Lakeway Highlands | 10 | $4,924 | 34 | $1,040,000 | 0.47% | 5.7% |
| Bella Colinas | 19 | $3,400 | 16 | $735,000 | 0.46% | 5.6% |
| Cardinal Hills | 10 | $3,350 | 19 | $770,000 | 0.44% | 5.2% |
| Tin Lake Hills | 14 | $3,650 | 16 | $825,000 | 0.44% | 5.3% |
| Steiner Ranch | 87 | $3,300 | 177 | $835,000 | 0.40% | 4.7% |
| Lake Pointe | 29 | $3,500 | 38 | $1,025,000 | 0.34% | 4.1% |
Source: Neuhaus Realty Group analysis of MLS closed single-family leases and sales, October 26, 2025 to October 25, 2026.
How we built it: every single-family home in the MLS that closed as a lease or a sale between October 26, 2025 and October 25, 2026 in zip codes 78734, 78738, 78669, 78732, 78733, and 78645, grouped by subdivision. Each listing counted once. We only show a neighborhood if it had at least 10 leases and at least 10 sales, which is why a lot of nice places are missing (Spanish Oaks had 3 leases, for example). One honest caveat: these medians compare different houses. The homes that get leased tend to be a little smaller than the homes that sell, so treat the ratio as a signal for the neighborhood, not an appraisal of yours.
So what does it tell you? Two things. The less expensive neighborhoods tend to rent for more relative to their value. Lago Vista, with a $341,775 median sale, tops the list at 0.64%. Lake Pointe sits at the bottom at 0.34%, where a $1,025,000 median house leases for $3,500. In Lake Pointe your house is worth a lot more than it rents for. That’s great if you bought it years ago at a low rate, and a terrible trade if you’re carrying a big balance.
The other thing is that a gross yield isn’t what you keep. A 6% gross yield in Sweetwater is a lot less once you take out property taxes, which out here are no joke. If your rent-to-value ratio is around 0.5% and your loan isn’t cheap, that’s usually the number that tells you to sell rental property and move the equity somewhere it works harder.
One more thing on rent, because this matters if you’re keeping it. Rents aren’t climbing like they were, and I’d say they’re coming down. In these six zip codes the numbers say basically flat, a median $1.38 per square foot per month on leased houses over the last 12 months against $1.36 the year before. Either way, nobody should plan on big rent bumps to fix the math.
The three-year clock on the capital gains exclusion
This is the big one, so lets make it simple. The exclusion needs 24 months of living there inside the 5 years before the sale. If you lived there at least two years right up until you moved out, add three years to your move-out date. That’s the day you need to be closed by. Closed, not listed. That’s not that hard right.
| You moved out in | Close the sale by about |
|---|---|
| October 2023 | October 2026 |
| March 2024 | March 2027 |
| August 2024 | August 2027 |
| January 2025 | January 2028 |
The rental years after you moved out don’t shrink the exclusion as long as you sell inside that window (IRS Publication 523 says the time after the last date the home was your main home isn’t counted as nonqualified use). But the window is the window. Go a month past it and the exclusion is just gone, not reduced, unless the main reason for the sale was a change in workplace location, a health issue, or an unforeseeable event, which can still qualify you for a partial exclusion (Source).
And back up from that date. A house takes time to get ready, sit on the market, go under contract, and close, so if your deadline is next spring you’re really deciding this winter. I’m a broker, not a CPA (and trust me, you do not want me doing your taxes), so run your exact dates past your tax person. Our capital gains tax guide for home sales goes deeper on the exclusion, and this post on selling and paying zero tax covers how the $250,000 and $500,000 limits work.
Depreciation recapture, the part the exclusion doesn’t cover
Here’s the catch that surprises people when they finally sell. Once it’s a rental, you take depreciation on it every year (or you were supposed to). Publication 523 says you can’t exclude the part of your gain equal to depreciation allowed or allowable after May 6, 1997. So even if you sell inside the three-year window, the depreciation comes back as taxable gain, at a rate of up to 25%.
“Allowable” is the word that bites people. If you never claimed it, the IRS can still treat it as if you did. Usually it’s a smaller check than people fear, but it’s not zero. I wrote more about it in depreciation recapture on real estate.
Selling a house with tenants, and why I’d wait until it’s empty
The mistake I see landlords make when they decide to sell is trying to do it with the tenant still in there. The tenant is not going to help you sell it. They didn’t sign up to keep the place spotless for showings on a Saturday morning, and their furniture and their dog aren’t how you want buyers to remember the house. Get the tenant out, refresh the paint, make it look cute, then list it.
And please don’t list it for lease and for sale at the same time. It’s a bad move. You end up with a buyer who wants it in 30 days and a tenant application for a 12-month lease on the same Tuesday, and you have to disappoint one of them.
So here’s the timing that works for most people:
- 60 to 90 days before the lease ends, decide. Check your lease for the notice it requires to not renew and give it in writing.
- Book the painter and the make-ready for the week the tenant moves out.
- List when it’s empty and clean. If you get to pick, spring is the time. In Travis County from 2023 through 2025, homes that sold in May averaged about 50 days on market, versus about 78 in December.
If you have to go the route of selling rental property with tenants in it (the lease ends after your three-year deadline, that’s the usual reason), know the rules. A sale doesn’t cancel a lease in Texas. The buyer takes the house with the lease on it. Showings happen under whatever access terms your lease gives you, so read that paragraph before you promise anybody a showing. And the security deposit follows the house: under Texas Property Code 92.105, the new owner is liable for returning it from the day they take title, and you stay on the hook until they’ve received it or assumed it. In practice that gets handled at closing. It also means your buyer pool is mostly investors, which usually means a lower price.
The third option, keep it and hire a property manager
Selling isn’t the only answer. If you’re at 3% and it cash flows, you might want to keep it for a long time. But the longer you keep it, the more you need to save back for repairs. Most owners make it one, two, maybe three years without a lot of repairs because they kept the house up while they lived there. Past about three years you’re looking at water heaters and more problems with the property, so start putting money away now, not when the AC quits in August.
If you’re a tired landlord and the reason you want to sell is the phone calls and not the numbers, that’s a management problem, not an investment problem. Kendall Creek Properties manages long-term rentals around Austin, and their piece on selling versus renting your Austin home walks through what keeping it looks like with someone else taking the calls. And if you’re on the other side of this (about to move and haven’t rented it yet), start with should I sell my house and rent or buy something new.
So, should I sell my rental property?
Here’s my short version:
- Not cash flowing? Sell before you’re three years out of the house.
- Cash flowing at a 3% rate? You can keep it, but save for the repairs that start showing up around year three.
- Close to the three-year line? Count backwards from the date and decide now, not in the spring.
- Selling? Get the tenant out, paint, make it cute, and list it for sale only.
Whichever way you lean, the first number you need before you sell rental property is what the house would sell for today, because that drives both the equity question and the tax question.
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Lets talk through your house
If you’re sitting on a rental you moved out of and the three-year date is getting close, reach out to me or send us a note. I’ve been selling homes around Lake Travis since 2009, and I’m happy to pull the real comps for your street, keep it or sell it. Grab a coffee, run the numbers, and decide with real dates in front of you. Be safe, be good, and be nice to people.
