The good news is that you're not moving very far away - I'd talk to a realtor whose firm can act as a property manager and get their perspective on whether renting for a while or selling at a loss will be a better bet in terms of getting you into something you want in Annapolis. It's realistic to expect a realtor in MD will have some ideas about market trajectory and rental rates in both towns. I wouldn't rule out the market in MV perking up a bit over the next year or so: MV is reasonably transit-accessible, so very much a DC commuter suburb and the affluent, close in burbs, are a bit nuts right now, with homes in Bethesda Chevy Chase going under contract days after being listed. I think that is eventually going to drive some buyers to the further out suburbs just as it did a few years ago.

To the op, one more thing you should be aware of thats important. If you convert your th to a rental as of today, your new cost basis will be 250k based on the info you provided. That means if you ever did sell and prices went back to 330k, you would pay capital gains on 80k. This is 330 - 250k. Unfortunately one way or the other, you will probably have a loss.
To 16:28 yes there is clearly a difference between losses and expenses. I never said expenses were not deductable in any year, only overall rental losses are not deductable and used examples such as repairs and depreciation which are contributors to obtaining an overall rental loss.

OP I posted previously about possible spending $50K to unload it. I too have had this dilemma with a house in PW County in VA during the last downturn in the 1990's. It would have cost us money out of pocket to sell as houses were selling at about $40K less than what we paid and $30 or so less than the mortgage. The neighborhood was iffy, it was far for us to get to, we had our share of bad tenants, lost rent, damaged property, thugs, break in's, a fire, you name it. We really wanted to get rid of it but held on and ended up selling it for more than twice what we paid for it, doing a 1031 exchange and "trading" it for a SFH in McLean which is a dream rental property. Of course, now the PW property it is worth less than half of what we sold it for. The McLean house is worth $150K more than what we paid for it. I suggest, if you can do it to stop thinking of it as a problem and start thinking of it as an asset will make money for you. Renting property is not that hard, I've been doing it for 20+ years.

yes $3k a year for a very long time. with possible inflation that is peanuts. hence we cut our losses and felt much healthier for doing so!

According to the IRS, "Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them."

LOSSES from a rental property do not seem to be the same thing as expenses.

Thank goodness I'm meeting with a CPA this week. I think this thread is full of misinformation and you all are freaking me out.

Sorry, OP. If it makes you feel any better, I'm in a really similar situation. Looking at taking a 100K loss and it really hurts.

Op here.....thanks for all the advice and input. Many people brought up points that I haven't even started to investigate/contemplate such as the tax-related issues with renting it out. It sounds like more people are suggesting to unload it and cut my losses? I don't see the market recovering in that neck of the woods for a long time....maybe 10-20 years? It's actually a fairly scenic and pretty area of town....but the school stats are poor, the crime-rate is high, etc. I am very concerned about being able to sell it. I went online and saw that many properties being listed in Montgomery Village are short-sales and foreclosures. Aghgh......we were young and dumb when we bought the townhouse in our mid-twenties, pre-kids......I know we couldn't have predicted the housing bubble but I'm pissed at myself for being in this predicament nonetheless.

Anonymous wrote:I'd get rid of it-and I say this as someone who just had to rent out an underwater property by necessity for 18 months. Being a landlord sucks and is a headache I'd avoid if you can afford to.

Depends on if there is any rental income. At one point, my DH had $3K rental income a month from 4 different properties. Of course, we had to pay taxes on it............

Anonymous wrote:

Anonymous wrote:You should be aware because you make more than 150k you will not be able to write off any of your rental loss on your taxes. The irs considers a rental loss a tax shelter. This goes for repairs, depreciation, whatever. The losses can only be used at the sale of the rental property. My advice is to sell if you can. Its not worth thw headache unless you think prices will double in a few years.

I don't think this is right. You can still deduct expenses like repair and maintenance against your rental income. There are limits to deducting losses from rental activity against your non-rental income, but I don't think it's correct to say you have to pay all the taxes and can't take any of the deductions.

Anyone know who's right and who's wrong here?

I remember when my DH was selling his rental properties, there was a cap and I do believe he said $150K, that after the cap, writing off expenses were disallowed. He had sold a property the previous year, which jacked up his income to over 150K, and wasn't able to take the expenses. Sucked.

I'd get rid of it-and I say this as someone who just had to rent out an underwater property by necessity for 18 months. Being a landlord sucks and is a headache I'd avoid if you can afford to.

Dump it. The value will only go down in that area.

With an income of $175-$165K one could easily have an AGI below $150K

This is correct. Rental income will be ordinary income. Make sure you plan for that. We got screwed this year and owed the iRD $4,703.00 for federal taxes. We did get a state refind for $1400 so we owed $3,00.00.