Leaving America: Should You Sell Your Home or Rent It Out?

Which states, and why Florida is not one of them

The state section covers California, Texas, New Jersey, New York and Illinois, the states Pew Research Center names as having the largest Indian populations: about 960,000 in California, 570,000 in Texas, 440,000 in New Jersey, 390,000 in New York and 270,000 in Illinois (Pew Research Center, Indians in the U.S. ↗). Each was checked against that state's own revenue department and county pages. Florida is deliberately left out. Many readers move there, and its homestead rules differ from the five above, but we have not yet checked them against Florida's own statute and county pages. We do not publish a state's rules we have not verified. If you own a home in Florida, the federal sections of this guide still apply in full; for the state layer, go to Florida's own sources until we add it.

The quick answer

If you lived in the home for at least the two full years before you moved out, the latest the sale can close and still get the full home-sale exclusion is three years after the day you moved out. It makes no difference how many years you lived there before that: only the time you lived there inside the five years before the sale counts. The date comes earlier if you had gaps, and moves only if you move back in or fall under one of the exceptions the law names (section 3). Renting the home out after you move out does not, by itself, cost you the exclusion, although depreciation for the rental years is still taxed when you sell (section 4).

Once you are a nonresident alien for US tax, rent you receive is generally taxed at 30 percent of the amount received, with no deductions, unless a lower treaty rate applies or you attach an election statement to your return. And whoever pays you the rent, including a private tenant, is required to withhold that 30 percent unless the rent is effectively connected income (through that election, or because the renting is itself a US trade or business) and you have given them Form W-8ECI first (section 7).

When you sell as a nonresident, the buyer must generally withhold 15 percent of the amount realised at closing — even if you owe no tax at all. On your side, only an IRS withholding certificate held before the closing date lowers that; lower rates also exist that depend on the buyer, not on you (section 9).

Every one of those sentences has conditions attached. The rest of this guide is the conditions.

1. This is two decisions, not one

It is easy to treat "rent it out" as reversible. For tax it is not, and the dates are not the same. Your three-year date in section 3 runs from the day the home stops being your main home, whether or not it is rented yet. Depreciation begins when the property is placed in service as a rental (IRS Publication 527, 2025 ↗, "When does depreciation begin and end?"). Neither consequence disappears because you later change your mind.

It is also easy to assume you stay a US taxpayer. You may not. An H-1B or L-1 holder who leaves becomes a nonresident alien once the tests in section 2 are no longer met; a green-card holder stays a US resident for tax until the card is formally given up. The sections on rent and on selling are written for both.

2. Who you are for US tax, and when that changes

Most of what follows depends on whether you are a US resident or a nonresident alien in the year in question.

For the year you leave, the default is that you are a US resident to 31 December (Reg. §301.7701(b)-4 ↗). You can end residency earlier — on your last day present in the US if you were resident by days of presence, or on the first day you are no longer a green-card holder — only if, for the rest of that year, your tax home is abroad and you have a closer connection to that country, you are not a US resident at any time in the following year, and you file a signed statement with the IRS (IRC §7701(b) ↗; Pub 519, 2025 edition ↗, chapter 1).

A green-card holder stays a US resident for tax until the card is revoked, or abandonment is determined — by filing Form I-407 or a letter with the card enclosed, with USCIS or a consular officer — or until treaty residence in another country is claimed and notified. The IRS says you remain a resident alien until you have proof the abandonment letter was received (Pub 519, chapter 1).

If you qualify for an earlier termination date, your departure year is a "dual-status" year: taxed as a resident on worldwide income up to that date, and as a nonresident alien after it (Reg. §1.871-13 ↗; Pub 519, chapter 6). You file Form 1040-NR marked "Dual Status Return" with a statement of the resident-period income, you cannot take the standard deduction or file jointly, and for tax year 2025 you cannot e-file it (Pub 519, chapter 6).

One date that catches people: if you had wages subject to withholding in the year you leave, the dual-status return is due 15 April, not the 15 June date that applies to nonresidents with no such wages (IRC §6072(c) ↗; Pub 519, chapter 6).

3. The full exclusion, and the date it runs out

You can exclude gain on the sale of your home only if, in the five years ending on the date of sale, you both owned the home and lived in it as your main home for periods adding up to at least two years — 24 full months or 730 days. The owning and the living-in do not have to be the same two years (IRC §121(a) ↗; Reg. §1.121-1 ↗). Short absences such as holidays count as living there, even if you let the home while away; a one-year sabbatical abroad did not count in the regulation's own Example 4.

The amounts are $250,000 of gain, or $500,000 on a joint return if (1) either spouse owned the home for the two years, (2) both spouses lived in it for the two years, and (3) neither spouse used the exclusion on another home in the two years before this sale (§121(b)). Section 121 contains no inflation adjustment; the figures have been unchanged since 1997 and change only if Congress amends the statute.

The three-year date. Once you move out, the clock runs on the sale date, not the listing or the contract. The test looks back five years from the day the sale closes and counts only the time you lived in the home inside that window. So if you lived there continuously up to the day you moved out, the latest closing date that still gives you the full exclusion is three years after you moved out, however long you lived there before. The regulation's own examples show it. One owner who had lived in his house since 1986 moved out in January 1998, rented it, and sold in April 2000, two years and two and a half months later: exclusion allowed. Another had lived in hers from 1986 to the end of 1997, eleven years, moved out in January 1998 and sold in July 2001, three and a half years later: exclusion lost (Reg. §1.121-1(c)(4) ↗, Examples 1 and 2).

Three years is the latest date, not a guarantee. It comes earlier if there were gaps in your living there during the five years, or if you lived there less than two full years before moving out: work backwards from 730 days of use. It moves later only if you move back in, which creates new use, or if you serve in one of the four kinds of government service named below. After the date has passed, the only route left is a partial exclusion for a qualifying reason, also below. "Date of sale" is the date in box 1 of Form 1099-S or, without one, the earlier of the title transfer and the shift of the burdens and benefits of ownership (Pub 523, 2025 edition ↗). Count the days.

Nothing pauses that clock for a private-sector posting abroad. The law lets members of the uniformed services, the Foreign Service, the intelligence community and the Peace Corps suspend the five-year period while on qualified official extended duty (§121(d)(9), (d)(12)). It names no one else.

Married, and only one of you qualifies. If only one spouse lived in the home for the two years, the couple's limit is that spouse's $250,000 plus whatever the other spouse could claim alone (§121(b)(2)(B)). The other spouse counts the years either of you owned the home, but must meet the two-year living-in test personally (Pub 523). A spouse who lived there less than two years may get a fraction of $250,000 only if the sale is for a qualifying reason — see the next paragraph.

If you have to sell before the two years are up. You may still exclude a fraction of $250,000 or $500,000 when the sale is because of a change in your place of employment, your health, or unforeseen circumstances (§121(c)). The regulation treats a sale as being for a change in place of employment if (1) the job change happened while you owned and lived in the home and (2) the new workplace is at least 50 miles farther from the home than the old one (Reg. §1.121-3 ↗). The regulation places no geographic limit on where the new workplace is; it also does not say a move abroad qualifies. The fraction is your months (or days) of ownership-and-use in the five-year window, whichever is shorter, over 24 months (730 days).

You do not lose the exclusion by becoming a nonresident. Section 121 does not ask whether you are a US resident when you sell; it asks whether you owned and lived in the home for two of the five years before the sale. The IRS's guide for aliens lists the main-home exclusion among the items a nonresident alien can exclude (Pub 519, chapter 3), and points to Pub 523 for the conditions. It does not apply if you are subject to the expatriation tax (Pub 519; §121(e)) — see section 10.

4. What renting does that you cannot undo

Renting after you move out does not, by itself, reduce the exclusion. The law excludes from "nonqualified use" any part of the five-year window that falls after the last day the home was your main home (IRC §121(b)(5) ↗; Pub 523, "Exceptions"). The nonqualified-use reduction applies to time after 2008 when the home was not your main home and that came before you last lived in it — for example, a home you bought as a rental and later moved into. That is the opposite of your situation.

Depreciation is the part that stays. Any depreciation on the home for periods after 6 May 1997 — the depreciation you claimed as a landlord, and the depreciation you were entitled to claim — comes out of the exclusion (§121(d)(6)) and is taxed as "unrecaptured section 1250 gain", for which the rate is 25 percent (IRC §1(h)(1)(E) ↗). Pub 523 puts it on line 5a of Worksheet 2. Your cost basis comes down by not less than the depreciation allowable whether or not you claimed it (IRC §1016(a)(2) ↗), so skipping depreciation "to avoid recapture" loses you the deduction without removing the basis reduction. One qualification the IRS publication does not mention: where you can prove that the amount actually allowed was less than the amount allowable, the statute counts the amount allowed (IRC §1250(b)(3) ↗).

5. The day you become a nonresident: the 30 percent rule

Unless you make the election in section 6 (or the rental is otherwise effectively connected with a US trade or business), rent paid to you as a nonresident alien is taxed at 30 percent of the amount received, with no deductions, or a lower rate where a tax treaty provides one — not on the profit (IRC §871(a)(1) ↗; Reg. §1.871-7 ↗; Pub 519, 2025 edition ↗, chapter 4). For an owner who is resident in India, the US–India tax treaty does not lower this rate: its article on income from real property lets the US tax rent from a US home and sets no reduced rate for it (US–India Income Tax Convention, Article 6 ↗). Do not expect the treaty itself to reduce the 30 percent. No mortgage interest, no property tax, no management fee, no repairs, no depreciation. On a house whose rent barely covers the mortgage, 30 percent of the gross is more than the profit.

Rent for the nonresident part of a dual-status year that is not effectively connected is taxed the same way (Pub 519, chapter 6).

6. The election that changes the basis of tax

You can elect to have all your income from US real property held to produce income taxed like a US resident's business income: on the net amount after expenses, at the graduated rates (IRC §871(d) ↗; Reg. §1.871-10 ↗). The election covers all such property, not one property or one type of income; the regulation's own example is rent from a former personal residence.

The election matters for the rent. The regulation also lists gains from selling the property among the income an election covers (Reg. §1.871-10(b)(1)). For an ordinary sale of a US real property interest, though, IRC §897 already treats the gain as effectively connected with a US business (IRC §897(a)(1) ↗), so you do not need the election for that gain to be taxed on the net amount (section 9).

You make it by attaching a statement to your Form 1040-NR for the first year of the election. The regulation lists five categories of property information (Reg. §1.871-10(d)(1)(ii)), but current IRS guidance asks for nine items, so follow the IRS list (Pub 519, 2025 edition ↗, chapter 4, "Making the choice"):

1. That you are making the choice.

2. Whether the choice is under section 871(d) or a tax treaty.

3. A complete list of all your real property, or interests in real property, in the United States.

4. The extent of your ownership in each property.

5. The location of each property.

6. A description of any major improvements.

7. The dates you owned each property.

8. Your income from each property.

9. Details of any earlier choices and revocations of the real property income choice.

Schedule OI of Form 1040-NR has a box for the election (Instructions for Form 1040-NR, 2025 ↗); the regulation requires the statement, and we found nothing saying the box or a net-basis return substitutes for it. Attach the statement.

Once made it stays in force for every later year, including years with no rental income. You can undo it without IRS consent only within the time for claiming a refund for the first election year (Pub 519: Form 1040-X within three years of filing or two years of payment); after that, revoking needs the IRS's written consent, requested within 75 days after the end of the first year you want it to stop, and you cannot re-elect for five years without consent (§871(d)(2); Reg. §1.871-10(d)).

If you make the election, depreciation on the rented home is a deduction you take each year (Reg. §1.871-10(c)(2)), and it reduces the home's basis, so it increases the gain taxed at up to 25 percent when you sell (section 4). Whether the election can be made for the nonresident part of a departure year is not addressed in any text we read; ask before you rely on it.

7. Your tenant, and the form that stops the withholding

Whoever pays you the rent — a property manager or the tenant personally — is a withholding agent: the statute says "all persons ... (including lessees ... of real ... property)" (IRC §1441(a) ↗) and the IRS says a withholding agent "may be an individual" (Pub 515, 2026 edition ↗). They must withhold 30 percent of each payment unless, before paying, they hold your Form W-8ECI with your taxpayer identification number, stating that the rent is effectively connected income (Reg. §1.1441-4 ↗; Pub 515).

If they do not withhold and you do not pay, both of you are liable for the tax; if you pay, they remain liable for interest and penalties (IRC §1461 ↗; Pub 515). A private tenant who has never heard of any of this is exposed the moment you become a nonresident. Give them the form before the first payment after your status changes.

8. The return, and the deadline that costs you every deduction

As a nonresident alien you get deductions and credits only by filing a true and accurate Form 1040-NR (IRC §874(a) ↗). The regulation adds a deadline: the return must be filed within 16 months of its due date — 15 June for a calendar-year filer with no wages subject to withholding, 15 April if you have such wages; if you skipped the previous year's return, the deadline is the earlier of those 16 months and the date the IRS mails you a notice that the return has not been filed (Reg. §1.874-1 ↗; Pub 519, chapter 7). The 16 months run from the ordinary due date, not an extended one.

Miss it and the rent is taxed on the gross with no depreciation, mortgage interest, repairs or property tax, unless the IRS grants a waiver for reasonable good-faith failure — which it will not do for someone who knew a return was due and chose not to file (Reg. §1.874-1(b)(2)). The statute itself sets no deadline; the 16 months is the regulation's. We record both rather than blend them.

9. Selling from abroad: the 15 percent, and the certificate

When a nonresident alien sells a US home, the gain is taxed as if it were effectively connected with a US trade or business (IRC §897(a) ↗) — on the gain, at the section 1 rates, or section 55 if that gives a higher figure — not under the 30-percent-of-gross rule. The FIRPTA regulations themselves provide for a nonresident seller to claim the home-sale exclusion when applying for reduced withholding (Reg. §1.1445-3 ↗).

The withholding. The buyer must withhold 15 percent of the amount realised (IRC §1445(a) ↗) — the cash paid, plus the value of any other property, plus any mortgage the buyer takes over or the property stays subject to (Reg. §1.1445-1 ↗). It is not 15 percent of the gain. On a $700,000 house with a $500,000 mortgage, $105,000 is withheld from proceeds of $200,000 unless a certificate is in hand. The rate was 10 percent for dispositions before 17 February 2016 (Instructions for Form 8288 ↗, Rev. January 2026).

Two lower bands exist, and both depend on the buyer, not on you. If an individual buyer has definite plans to live at the property (or have a family member live there) for at least half the days it is used in each of the first two years, then: no withholding if the amount realised is $300,000 or less (§1445(b)(5); Reg. §1.1445-2 ↗); 10 percent instead of 15 if it is more than $300,000 and not more than $1,000,000 (§1445(c)(4)). The buyer decides whether to rely on this, and the buyer carries the liability if the plans do not hold. You cannot claim it for them.

Qualifying for the exclusion does not stop the withholding. Withholding is on the amount realised, not on gain, and the regulations say a seller claiming the section 121 exclusion cannot use the seller's-notice route that other nonrecognition cases use — the buyer is excused "only upon the timely application for and receipt of a withholding certificate" (Reg. §1.1445-2(d)(2)(iv)). Two systems, not one.

The certificate. Apart from the buyer-based bands above, having less than 15 percent withheld needs an IRS withholding certificate, applied for on Form 8288-B ↗ (Rev. December 2025). The application must reach the IRS at P.O. Box 409101, Ogden, UT 84409 — or be mailed there under the postmark rule — on the day of the sale or earlier (Reg. §1.1445-1(c)(2)); an application without a specific or estimated transfer date is rejected as incomplete (Form 8288-B). Before closing, give the buyer written notice with your name, address, TIN, a description of the property and the date you applied (Reg. §1.1445-1(c)(2)(i)(B)); the IRS's own documents differ on whether closing day itself is in time, so do it earlier.

If the application is pending at closing, the buyer still withholds the 15 percent but does not send it to the IRS until 20 days after the IRS mails its decision (Reg. §1.1445-1(c)(2)). Apart from those bands, only a certificate actually received before closing lets the buyer withhold less or nothing (Reg. §1.1445-2(d)(2)(iv); §1.1445-3(a)). The IRS says it will act not later than the 90th day after it has all the information it needs, with notice by day 45 in complicated cases (Reg. §1.1445-3(a)); its forms say "normally". Do not set a closing date around a certificate you do not yet hold.

If you apply late, the buyer must pay the withholding to the IRS within 20 days of closing (Reg. §1.1445-1(c)(1)). You can then apply for a certificate and an early refund together (Reg. §1.1445-3(g), paid without interest) or claim it on your 1040-NR.

Getting it back. The buyer files Form 8288 with the withheld money and two copies of Form 8288-A within 20 days of closing. The IRS stamps Copy B and mails it to you — not the buyer — and only if your TIN is on it (Pub 515). You get the money back either on your Form 1040-NR for the year of sale, entering the withholding on line 25f and attaching Copy B to the front (Instructions for Form 1040-NR), or, if you hold a certificate showing less was due, by an early-refund application before the return is due. If Copy B never arrives you may attach closing documents and a statement instead (Reg. §1.1445-1(f)(3)). Withholding does not settle the tax and does not excuse the return.

Your taxpayer number. If you were issued a Social Security number while working in the US, that is your taxpayer identification number for Form 8288-B, Form 8288-A and Form 1040-NR. Do not apply for an ITIN: the IRS will not issue one to a person who has an SSN, and tells you to keep using the SSN even after you lose work authorisation (Instructions for Form W-7 ↗, Rev. December 2024). A co-owning spouse who never had an SSN does need an ITIN, applied for on Form W-7 with the 8288-B attached. A certificate application cannot be issued without the seller's identifying number (Reg. §1.1445-3(a)).

10. Green-card holders: one paragraph, and a separate guide

Three questions are easy to run together. They are separate, and they are answered in this order.

1. When does your US tax residency end? For a green-card holder, when the card is given up or its abandonment is determined, or when treaty residence elsewhere is claimed and notified (section 2). This is the date from which sections 5 to 9 apply.

2. Are you a long-term resident? You are one if you held the green card in at least 8 of the 15 tax years ending with the year your residency ends (IRC §877(e)(2) ↗). Claiming treaty residence in another country can itself end long-term residency for this purpose (§7701(b)(6)).

3. Are you a covered expatriate? A long-term resident whose residency ends is a covered expatriate if any one of three tests is met: average annual net income tax for the five prior years above $211,000 for a 2026 expatriation (Rev. Proc. 2025-32 ↗; $206,000 for 2025, Pub 519), net worth of $2,000,000 or more (not indexed), or failure to certify five years of tax compliance on Form 8854 (§877(a)(2)).

Covered expatriates are generally treated as if they sold their property for fair market value the day before expatriation (IRC §877A ↗), subject to separate rules and exceptions for certain assets and accounts. That can include the house. If you are a long-term resident whose residency ends, the initial Form 8854 filing requirement applies whether or not you turn out to meet the covered-expatriate tests (Pub 519, chapter 4). The income-tax figure is adjusted every year. This guide stops here.

11. Where you live changes the answer

The federal rules above apply everywhere. The state layer changes the money and the paperwork. We checked five states against their own revenue and county pages; Florida is not among them, for the reason given at the top of this guide. If your state is not here, the federal part still applies and your state's rules need their own check.

California. A nonresident is taxed on rent from real property in California and on the sale of California real property, on Form 540NR ↗. Withholding at sale is on every sale of California property regardless of the seller's residency unless an exemption is certified on Form 593 ↗: 3 1/3 percent of the sales price, or an elective calculation of 12.3 percent of the gain (2026 instructions). Two exemption lines matter and they are separate: line 1, the property qualifies as your principal residence under the federal two-of-five test; line 2, the property was last used as your principal residence. Line 2 is not available once the last use was a rental. The homeowners' exemption ↗ is $7,000 of assessed value; you must notify the assessor by 10 December of the year you stop qualifying, or face an escape assessment with a 25 percent penalty (BOE Rule 135 ↗). Landlord rules: California Courts self-help ↗.

Texas. No state or local income tax (Comptroller, A Field Guide to the Taxes of Texas ↗, December 2025); no state withholding at sale. The residence homestead exemption survives a temporary absence only if you do not establish a different principal residence and the absence is for less than two years with intent to return (Tax Code §11.13(l)). You must notify the appraisal district in writing before 1 May after your entitlement ends (§11.43(g)); the district can add back up to five preceding years (§11.43(i)), and a false application carries Penal Code §37.10 penalties. The school-district exemption is $140,000 (Comptroller exemptions page ↗). Landlord rules: Texas Attorney General ↗.

New Jersey. Nonresidents file NJ-1040NR ↗ if gross income from everywhere exceeds $10,000 (single) or $20,000 (joint); gain on New Jersey property is taxable. At closing, a nonresident seller pays an estimated tax ↗ of 10.75 percent of the gain, with a minimum of 2 percent of the consideration whether or not there is a gain — the deed cannot be recorded without the GIT/REP form and payment. Part-year residents count as nonresidents. The principal-residence exemption on GIT/REP-3 requires the property to have been used exclusively as a principal residence and the entire gain to be excludable; a home rented for years does not qualify, and the 2 percent is recovered only on the return. New Jersey's benefit is ANCHOR ↗, tied to residency and principal residence on 1 October; if it is auto-filed for you and you have left, you must decline it by the date on the page. Landlord rules: NJ DCA ↗.

New York. Nonresidents file IT-203 ↗ on income from real property in the state, rent and gain included. At closing, a nonresident seller pays estimated tax on the gain on Form IT-2663 ↗ (2026 instructions), and the deed is not recorded without it; the full exemption is for property that "qualifies in total as the principal residence" under the federal rule — a house that fails the two-of-five test does not. If only part of the property qualified as your principal residence, such as a two-family house with one unit rented out, estimated tax is due on the gain allocable to the part that did not (2026 IT-2663 instructions). Estimated payments made with IT-2663 cannot be refunded before the return is filed. STAR ↗ requires the property to be your primary residence; you agree to notify the assessor when it changes, and the penalties ↗ for claiming a property as your residence when it was not include six years' disqualification and, for the exemption, a penalty tax and repayment of up to six years. Landlord rules: NY Attorney General ↗.

Illinois. Nonresidents file IL-1040 with Schedule NR ↗; rent and gain from Illinois real estate are Illinois income. The Department of Revenue's pages list no withholding at closing on a nonresident's sale; tax is paid by estimated payments and on the return. The General Homestead Exemption ↗ is up to $10,000 in Cook County, $8,000 in adjoining counties, $6,000 elsewhere, for property occupied by the owner as principal dwelling. In Cook County the exemption auto-renews, an owner who is not occupying the property on 1 January must notify the assessor by 1 March, and erroneous exemptions carry 10 percent interest and, from the third erroneous year, a 50 percent penalty and a lien (35 ILCS 200/9-275). Outside Cook County the statute we read provides for cancellation only. Landlord rules: Illinois Attorney General ↗.

Your lender. The standard Fannie Mae/Freddie Mac mortgage instrument says you must occupy the property as your principal residence within 60 days of signing and continue to occupy it for at least one year, "unless Lender otherwise agrees in writing, which consent will not be unreasonably withheld, or unless extenuating circumstances exist that are beyond Borrower's control" (Uniform Instrument Form 3005 ↗, covenant 6, 07/2021 rev. 05/26). Misrepresenting occupancy is a default. Leaving within that first year and renting the house is a breach unless one of the two exceptions applies. After the first year, our review of the current Fannie Mae Servicing Guide did not identify a general rule requiring you to notify the servicer when a home becomes a rental. That does not establish that your own loan documents impose none: read your note and security instrument, and ask your servicer. FHA, VA and non-conforming loans are not covered here.

Your insurance. The Texas Department of Insurance says "most homeowners insurance won't cover damage to a rental property, or it might limit what it pays for" (TDI, Renting out your home ↗), and that policies exclude losses while the house is vacant "for the number of days specified by your policy". California's insurance department lists losses to a house vacant for 60 days or more among standard exclusions (CDI guide ↗). The instrument for a rented house is a landlord policy, also called a dwelling fire policy (NAIC ↗). Read the vacancy clause before you leave the house empty between tenants.

Your bank accounts. For any part of a year in which you are a US person, foreign accounts remain reportable. Our guide NRI Tax 101 covers FBAR and FATCA.

12. The five questions

1. How long will you be gone, honestly? If the sale can close by your three-year date (section 3), renting does not by itself make you fail the two-of-five-year test, although the depreciation rules in section 4 still apply. If it cannot, the full exclusion is gone, a partial one survives only for the reasons the law names, and the decision is mostly about cash and hassle, not tax.

2. How much gain is in the house? A small gain makes the exclusion a minor factor. A large one makes the three-year date the whole decision.

3. Will you be a nonresident alien next year, and will you attach the election? Without it, the number is generally 30 percent of the rent, not of the profit.

4. Can you get a withholding certificate in hand before closing? If not, and the buyer-based rates in section 9 do not apply, plan on 15 percent of the amount realised leaving at closing and coming back on the return.

5. Can you run a rental from abroad? Price the manager, the vacancy clause, the state return, and the lender's covenant before you decide it is passive.

13. Two families, worked through

The figures below are illustrations, not data.

The Raos leave in July, two years out, and rent. They bought in 2021, lived there until July 2026, and rent it from August. They intend to sell in early 2029. The last day of principal-residence use is July 2026, so the latest closing date that keeps the full exclusion is July 2029; a spring 2029 closing is inside it. They become nonresident aliens on their departure date because they file the termination statement and have a closer connection to India for the rest of the year; their 2026 return is dual-status, due 15 April 2027 because they had wages. They attach the election statement to that return so the rent is taxed on the net, give the tenant a W-8ECI before the first post-departure rent, and file every 1040-NR inside the 16-month limit. Before the 2029 closing they apply for a withholding certificate on Form 8288-B showing the exclusion covers the gain, and notify the buyer in writing. Depreciation for the rental years is taxed at up to 25 percent on sale; the rest of the gain is excluded, up to the exclusion limit.

The Mehtas leave for good and cannot decide. Same dates, but they do not expect to return and would sell "whenever the market is good". If that is later than July 2029, the full exclusion is gone and, unless a partial exclusion applies, the whole gain is taxed as a nonresident's effectively connected gain. Their decision is not "sell versus rent"; it is "sell by July 2029, or accept the tax on the full gain". Seeing that, they list in 2028.

14. Before you decide: checklist

1. What is the last day this home was my main home, and what is the date three years after it? Were there gaps in the five years that make my date earlier?

2. Did I live here for at least the two full years before that day? If not, what is my actual deadline?

3. Am I married, and do we both meet the two-year living-in test?

4. Will I be a nonresident alien next year? Will I file the residency-termination statement this year?

5. Is my departure-year return due 15 April or 15 June?

6. Have I written the election statement, with all nine items on the IRS list, to attach to my first 1040-NR?

7. Has my tenant or manager got my Form W-8ECI with my TIN before the first post-departure payment?

8. Is every 1040-NR filed within 16 months of its due date?

9. Have I applied for the withholding certificate early enough to hold it before closing, and told the buyer in writing?

10. Does the buyer have my TIN so Copy B of Form 8288-A can reach me?

11. Am I within the first year of my mortgage? If so, does the lender agree in writing?

12. What does my state or county require when the home stops being my principal residence (a notice, a cancellation, giving up a benefit, or something else), and by what date?

13. Have I switched to a landlord policy and read the vacancy clause?

14. If I hold a green card, have I checked the eight-of-fifteen-years test before giving it up?

15. Sentences to distrust

"Every year you rent it out costs you a slice of the exclusion." Not for a home you lived in and then rented. Nonqualified use is time before you last lived there, not after (§121(b)(5)).

"You have about three years." You have a latest date: three years from the last day you lived there, and earlier if you had gaps. Check that the five years before the closing date contain two years of living there.

"Once you're a nonresident, you lose the exclusion." Section 121 has no residency condition, and the IRS lists it among what a nonresident alien can exclude.

"Just report the net rent on the 1040-NR." The election is a statement with nine items on the current IRS list. Without it, the rule is generally 30 percent of the gross.

"The tenant doesn't need to withhold — they're just an individual." The statute names lessees, and the IRS says a withholding agent may be an individual.

"No gain, no withholding." The 15 percent is on the amount realised. The exclusion does not switch it off. On your side, only a certificate received before closing does; the lower rates in section 9 depend on the buyer.

"I've applied for the certificate, so nothing is withheld at closing." A pending application delays the buyer's payment to the IRS. It does not reduce what is withheld.

"My old homestead exemption just lapses." Don't count on it. California expects you to tell the assessor by 10 December, with a 25 percent penalty if you don't. Texas expects written notice before 1 May and can add back up to five years of tax. New York's STAR asks you to notify the assessor. Cook County in Illinois expects notice by 1 March, then adds interest and penalties. New Jersey's ANCHOR asks you to decline a benefit you no longer qualify for. The rules, dates and consequences differ; read your state's paragraph in section 11.

FAQ

Can I keep the exclusion if I rent the house while I'm abroad? Yes, if the sale closes by your three-year date: three years after the last day you lived there, or earlier if you had gaps, with two years of living there in the five years before the sale. The rental period after you move out is not nonqualified use. Depreciation for the rental years is still taxed when you sell (section 4).

What if I sell one month after the three years? The full exclusion is gone. A partial exclusion may survive if the sale is for a change of employment, health or unforeseen circumstances; the regulation does not say a move abroad is one. The clock pauses only for the four named kinds of government service.

I've become a nonresident. What happens to the rent? Generally taxed at 30 percent of the amount received, no deductions, unless a lower treaty rate applies (the US–India treaty sets none for rent from US property) or you attach the election statement to your 1040-NR. Your tenant or manager must withhold that 30 percent unless the rent is effectively connected (through the election, or because the renting is itself a US trade or business) and they hold your W-8ECI (section 7).

Is the election worth making? It is what lets you deduct mortgage interest, property tax, management and depreciation. It covers all your US real property and stays in force. You can undo it without IRS consent only within the refund window for the first election year; after that, revoking it needs consent.

Will the buyer really withhold 15 percent if I owe no tax? Generally, yes. The exclusion does not stop withholding. On your side, only a withholding certificate received before closing does; a pending application only delays when the buyer pays the money over. Lower rates that depend on the buyer are in section 9.

Do I need an ITIN? Not if you have an SSN. The IRS will not issue an ITIN to someone with an SSN and says to keep using it. A co-owning spouse without an SSN needs one.

Does my state matter? Yes. Texas has no income tax. California withholds at closing; New Jersey and New York require an estimated-tax payment at closing instead, which is a different mechanism. And each state handles the homestead benefit differently, with different dates and consequences (section 11).

I have a green card. Can I just hand it in? If you have held it in at least eight of the last fifteen tax years, giving it up can make you a long-term resident for the expatriation rules. If you also meet a covered-expatriate test, special exit-tax rules can apply to your assets, including the house. Read section 10 before you file anything.

The SOSGI bottom line

Renting out the home you are leaving is not the reversible choice it looks like. The full exclusion survives only until your three-year date, and earlier if you had gaps. On the federal side, keeping the rest working means attaching one statement, handing your tenant one form, filing one return on time each year, and applying for one certificate before you sell. Miss the date and the full exclusion is gone; miss the statement and the tax is on the gross rent; miss the certificate and, unless a buyer-based rate applies, 15 percent of the amount realised is withheld at closing.

Work out your three-year date before you decide anything else. Then decide.