Stay renting, or move back in?

One number to remember.

If we return to 3565 Market St, our household costs go up by $4,150 every month on a fully-loaded basis — cash plus the tax trade-off. Before any other consideration, that's the financial delta we're weighing.

Both scenarios, at a glance.

The current setup, line by line.

Patrick Colville and family rent 3565 Market St at $7,957/mo (Sep 2026 rate, +3% from 2025). Tenants pay utilities. We pay our own $5,000/mo rent for wherever we're living now.

Cash flow on the property

Schedule E — the surprise

The property actually runs at a paper loss once you include depreciation (~$40k/yr on the building, 27.5-yr straight-line). That loss would normally shelter other income — but at our MAGI (~ $409k MFJ), the passive activity loss rules fully phase out. The $53,889 suspended loss carries forward indefinitely and only becomes useful if our MAGI drops below $150k, or if we convert the property to active participation.

Same property, different tax treatment.

If we make 3565 Market our primary residence, the rental income disappears, Schedule E disappears, and Schedule A picks up part of the property's costs. The mortgage is still paid. The property tax is still paid. What changes is what shows up on which form.

Cash flow (no rent income)

Schedule A — the personal itemized return

The mortgage interest and SALT-capped property tax become itemized deductions on our joint return. CA state tax alone is ~$28k, which already saturates the $10k SALT cap — so the $23,811 property tax adds $0 of new Schedule A benefit. The mortgage interest is the only meaningful new item.

What changes, line by line.

This is the operational comparison. Lines that appear in both columns are zero-impact; the deltas are what matter.

Why the tax savings is only $9,281 — and not more.

The passive loss suspension (Scenario A)

Schedule E shows a $53,889 paper loss driven mainly by the $40,000 non-cash depreciation. At MFJ MAGI above $150,000, the passive activity loss rules (IRC §469) phase out the ability to deduct rental losses against wages. Morsy + Henda combined MAGI is ~ $409k, so the entire loss is suspended.

The suspended loss carries forward indefinitely on Form 8582. It becomes usable if (a) MAGI drops below $150k, (b) we become a real estate professional under §469(c)(7), or (c) we sell the property (suspended losses become fully deductible against the sale gain).

The SALT cap (Scenario B)

California state income tax alone, at our income, is approximately $28,000 — already well above the $10,000 federal SALT cap. So adding $23,811 of property tax to Schedule A produces $0 of additional benefit. This is the single biggest reason the tax savings isn't larger.

The mortgage interest (Scenario B)

The $48,718 mortgage interest is fully deductible on Schedule A, assuming the loan was originated before December 16, 2017 (the TCJA acquisition-debt cutoff). Post-2017 loans on a balance above $750k would cap the deduction — worth confirming the loan origination date against the FirstTech 1098.

What this looks like in dollars

What's not in the headline number.

1 · Depreciation recapture on future sale

If we return and live there for 2+ years before selling, the home-sale exclusion ($500k MFJ) may shield most of the gain. But any cumulative depreciation taken while it was a rental (~$40k/yr × ~9 years = ~$360k) recaptures at up to 25% (~$90k) on a future sale — even if we never live there again. This is a future-event risk that doesn't affect today's decision but is worth flagging.

2 · HELOC interest ($17,643/yr on file)

The FirstTech HELOC interest is currently deductible on Schedule E because the rental use traces through. If we return and occupy the property, HELOC interest becomes deductible on Schedule A only if the HELOC proceeds were used to buy, build, or substantially improve the property itself (the "home acquisition debt" tracing rule). If the proceeds were used for anything else (investments, paying off other debt, etc.), the interest is non-deductible personal interest. Worth checking the original draw purpose on the HELOC documents.

3 · Property tax reset in March 2026

The $23,811 figure used here is the FY24-25 2nd installment + FY25-26 1st installment. The FY26-27 installment (due March 2027) will likely reset slightly higher under Prop 13 (max 2%/yr). For a forward-looking 12-month model from any point in 2026, budget $24,200–$24,800.

4 · Utilities estimate pending verification

The $300/mo utility increase is a directional estimate. PG&E and SFPUC charges for a 3-bath SFH are running $250–$400/mo in current rates, but the tenants may have been on different rate plans. To firm this up, log into PG&E and SFPUC portals for the property's 2025–2026 actual bills.

5 · Mortgage interest direction

The $48,718 used here is the 2025 1098 interest figure. The 2026 figure will be slightly lower as principal amortization grows. For a forward 12-month model, budget ~$46,000–$47,500.

6 · Vacancy assumption

The model assumes 10/12 months of rental income, not 12/12. This bakes in a 17% vacancy buffer. Actual 2025 was closer to 11.5/12. If you trust no vacancy, A's rental income rises by ~$15,888, dropping the A cost by ~$5,560/yr.

7 · The $5,000/mo "current rent"

If our current rental includes some utilities that wouldn't transfer, the B-side utility delta could be smaller than $300/mo. Conversely, if 3565 Market is materially bigger (more rooms, more lighting, more heating), the true delta could be higher.

What we held constant.

All figures verified against 2025 ledger entries on file in the property bookkeeping folder. Forward projections use 2025 actuals as the baseline. Last verified Sep 13, 2026.