Sell or rent it out

Q. My husband and I are moving out of state and are debating selling or renting out the house. We live near a military base that has many foreign trainees. Our real estate broker has good things to say about the chance of renting, since young families come in often for a typical one to three years. We have a good chance at making $500 to $600 extra a month on top of the mortgage being paid by rent money.

There would be specifics in the contract on credit checks, maintenance, pets, etc., that help ease my mind about being an absentee landlord. I'm just not 100 percent on renting when we could sell now and get a good profit toward a new house. Or should we keep it and take a chance?

A. My standard advice is that your first real estate investment should be located within a half-hour drive of your own home. One investor I know says it should be "visible from my upstairs window." Absentee landlords, especially inexperienced ones, are often asking for trouble.

It does sound, though, as if you have a capable manager eager to take care of the place. That profit after rental income pays your mortgage - I assume that includes property taxes and insurance, but have you also subtracted management fees? Have you included a set-aside for repairs and maintenance? Could your family finances handle a failed water heater, a flooded basement or a two-month vacancy?

But look - I don't know the real estate market there. Nor do I know your finances and whether you're ready for a real estate investment. I'm afraid that in the end it'll have to be your decision.

Q. A colleague of mine is a freelance editor and is refinancing with the bank she's used for three decades, which holds her mortgage. She submitted her two most recent 1040 tax returns, but they want copies of her 1099 forms, which she finds odd and unnecessary. She has gotten two mortgages and three refinances with 1040s alone, although that was some years ago. It seems odd to me, too. What do you think?

A. I think it's their bat and their ball, and if she wants their money, she'll have to play by their rules.

I'm sure her longtime bank knows and loves her. But they're operating under stricter regulations since she last refinanced her mortgage, and they must follow new guidelines. Because she is self-employed, she's always had to produce extra proof of income anyway.

Tell her she might as well relax and meet their requests.

Q. My brother and his wife bought a home in California just before the housing bubble burst.

They are underwater on the mortgage with no hope of getting even for years. They are ready to leave California. Other than a short sale, are there any other options for people in this position? They do not want to be long-distance landlords.

A. Under a short-sale arrangement, the lender agrees to accept whatever the property will bring on the open market, take it as partial payment for the mortgage debt, and - usually - forgive the rest. Your brother and sister-in-law may or may not qualify for this arrangement. The lender will consider their total situation, reason for moving, other assets and income.

If they don't qualify, I'm afraid I have no magic solution to suggest. Sometimes people who want to move have to bite the bullet and pay off the rest of the mortgage with their own cash.

But if they do arrange a short sale, here's another worry:

The IRS didn't tax the money your relatives borrowed on a mortgage because they were going to pay it back. But if they don't - as would be the case with forgiven mortgage debt in a short sale - the government will say they've had taxable income.

When the real estate market tumbled a few years ago, special legislation was passed, so that forgiven debt on short-sale mortgages wasn't taxed. That provision ran out in 2014, though. Congress may well reinstate it, but they haven't done so yet.

And by the way, a loss on the sale of one's own home is not tax-deductible, any more than a loss on the sale of a used car would be.

The only cheerful thing I can think of is to hope your brother and his wife will be buying their next home in a lower-price market.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.

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