Moving up and keeping your current home as a rental

How lenders count the old home’s rent, the occupancy promises you signed, insurance and condo rules, and how renting changes depreciation and the home-sale exclusion.

Owning & renting out · Last updated 2026-10-28

Key points

Start with financing. Under Fannie Mae’s current guide, market rent on a departing residence is documented by an appraisal or comparable rents, not a lease, and 75% of it minus the old home’s full monthly payment (PITIA) can only offset that payment, not add income. The rules changed in 2026, so ask which version your lender applies.
Check the occupancy terms you signed. FHA borrowers agree to move in within 60 days and intend to stay at least one year; MassHousing’s mortgage rider asks for principal-residence occupancy for as long as the loan is in force.
Before the tenant moves in, change the insurance, check the condo documents for leasing rules and notify the board. Exemptions tied to living in the home, such as a residential exemption, no longer apply.
Depreciation starts when the home is ready and available for rent, on the lower of your adjusted basis or its fair market value at conversion. If you may sell, watch the two-out-of-five-year window, and expect depreciation to be taxed even when the rest of the gain is excluded.

Keep or sell: start with the new loan

Keeping the old home works best when the new purchase does not depend on selling it. If you need the old home’s rent to qualify, Fannie Mae treats a primary residence that will be vacated and converted to an investment property as an eligible departing residence. The lender must document your current housing payment, and market rent comes from an appraisal with market rents or a rent schedule, or from market data with at least three comparable rentals; under the current guide a lease cannot be used.

The calculation is conservative. The lender takes 75% of the monthly gross rent and subtracts the old home’s full monthly housing payment, known as PITIA. A positive result can offset only that PITIA and does not count as extra income; a negative result goes into your debt-to-income ratio. With less than 12 months of property management experience, the lender must also verify six months of reserves for the old home’s PITIA. Fannie Mae changed these rules in a September 2026 update, so before you make an offer on the next home, run the numbers with a loan officer and ask which version applies to your application.

Then look at the old home as an investment on its own. Test the cash flow with a conservative rent, an allowance for vacancy and every cost on the list below; that result is what decides whether keeping it makes sense.

Mortgage principal and interest, property tax and insurance on the old home
Condo or HOA fees and any special assessment
A landlord insurance policy, usually priced differently from a homeowner policy
Repairs and replacements, which you now owe a tenant on a schedule
Vacancy and turnover between tenants, including cleaning and painting
Property management, if you will not handle calls yourself
Lead paint compliance and local registration or inspection fees
Income tax on net rental income

Occupancy promises in your mortgage

Loans are priced and underwritten by occupancy. Fannie Mae defines a principal residence as a property the borrower occupies as their primary residence, and an investment property as one owned but not occupied by the borrower. When you financed the current home as a principal residence, you made commitments about living there.

Some programs spell out how long. With an FHA loan, at least one borrower must move in within 60 days of signing the mortgage and intend to stay at least one year. MassHousing’s posted Uniform Mortgage Rider asks the borrower to occupy the home as a principal residence for as long as the mortgage is in force, and to make no transfer that ends that use.

Find your recorded mortgage and any program rider and read the occupancy section before you move out. If you have a state or local program loan, or closed recently, call the servicer or program administrator first. Be just as precise on the new application: the new home is the principal residence, and the old one is a rental.

Insurance, condo rules and local items

Call your insurer before the tenant moves in. A homeowner policy is written for a home you live in. A rented home usually needs a landlord or dwelling policy that covers the building, your liability and lost rent if the unit becomes unlivable after a covered loss. In a condo, adjust the unit-owner policy as well. Ask the tenant to carry renters insurance for their own belongings and liability.

In a condo, read the master deed, bylaws and rules for leasing limits, such as minimum lease terms, a cap on rented units, or a notice or approval process. Tell the board or manager before you sign the lease, give the tenant the house rules, and get any approval in writing before you take money from the tenant. A neighbor who already rents is a lead to check, not proof that renting is allowed.

Small, self-managed associations deserve extra care. If it is unclear who is on the board, or repairs and assessments have stalled, a tenant problem in a common area can sit unresolved. Find out who makes decisions and how quickly they respond before you commit.

Some property tax relief depends on living in the home. Where a city or town has adopted the residential exemption, it applies only to the taxpayer’s principal residence, so expect it to end once you move out; see our property tax guide. Rental registration, lead paint, smoke alarms and security deposits are covered in our landlord compliance and first rental guides.

Taxes while you rent

Rental income and expenses go on Schedule E. In the year you convert, split yearly costs such as property tax and insurance between the personal months and the rental months. You can begin to depreciate the home when it is ready and available for rent.

The depreciation basis for a converted home is the lower of your adjusted basis or the fair market value on the date of conversion. Land is not depreciable, so only the building portion counts. Residential rental property is generally depreciated on a straight line over 27.5 years. Keep the purchase documents, an estimate of value at conversion, and records of improvements.

Rental losses are usually passive. If you actively participate, you may be able to deduct up to $25,000 of rental losses against other income. If you are married filing separately, the limit is $12,500 when you lived apart from your spouse all year, and the allowance is not available if you lived together at any time during the year. It shrinks once modified adjusted gross income passes $100,000 ($50,000 if married filing separately) and is gone at $150,000 ($75,000). These rules interact with your whole return, so work through them with a tax professional.

If you sell later

The home-sale exclusion requires that you owned the home and lived in it as your main home for at least 24 months during the five years ending on the sale date. The 24 months do not have to be continuous. After you move out, that window starts to close, so decide early whether you are keeping the property for the long term or may sell.

Time spent as a rental after you last lived in the home, within that five-year period, is not counted as nonqualified use. That changes if the order is reversed: rental use before you move in, after 2008, can reduce the excludable gain.

Depreciation from the rental years still has to be dealt with at sale. Any depreciation allowed or allowable for periods after May 6, 1997 cannot be excluded and is taxed as recapture, even when the rest of the gain qualifies for the exclusion. Our seller tax guide covers the exclusion amounts and how the gain is reported.

General information for Massachusetts homeowners, current as of the date shown. It is not legal or tax advice; your loan documents, condo documents and tax situation decide the details, so confirm them with your lender, the association and a tax professional.