Bill,

The decision to hold on to it and turn it into rental property should be based on the economic/financial potential and not tax driven. Most likely your property, like all beach property, will continue to appreciate. In spite of the short term stumbles and bumps, in the long run your property may very well turn out to be the best investment you've ever made. Turning it into a rental will cover the costs of carrying it while you are holding it.

I would assume that your income is far too high for you to show any kind of loss from rental real estate on your tax return, so you probably can't expect any tax consideration from it, but if you can rent it for at least enough to carry it, you will wind up, sometime down the road, with a greatly appreciated asset.

There is talk, as Morris suggests, that if the Democrats win the capital gain rates will go up. That of course is a possibility, but I'd expect the house to appreciate much more than the increase in rates will cost you.

Morris's other alternative, dying and letting your widow have a step up in basis works, but I think you're far better off staying alive and paying the tax. That, of course, is just my opinion, others may see things differently.

Seriously though, the only down side that I can see to renting the house, assuming you can rent it for enough to cover the costs, is being a landlord. If that doesn't bother you, I think the choice is clear.