Thinking of Selling Your House? Read this First!

Should I Sell My House?

This is frequently the most significant financial decision faced by many seniors—or by family caregivers. Often the impetus is that a person’s cost of care has risen or that home maintenance and safety issues have become unmanageable. The situation can become acute if family members or other potential caregivers live too far away from the homeowner to provide help on a regular basis. Beyond the potential emotional issues that surface and need to be considered, there is both a financial impact and possible benefits that can result from selling a home.

Often while decisions about selling the home are occurring other related and important choices are being made simultaneously in regards to an elder’s care needs. Hopefully all these decisions incorporate both present and future possibilities. Unfortunately I often see people make decisions that only resolve the present issues. And later caregivers and family members face ramifications or even losses that they did not calculate initially. You will need objective financial assistance. Remember your realtor is not a financial planner. It is common today that someone’s home has become a person’s major asset and financial resource. That being the case, the decision whether to sell a home should be thoroughly assessed.

There are two financial issues one must consider that are related to the costs of sale. One is transactional fees and the other is tax implications. Transactional fees vary, but can include commissions, escrow fees, inspection fees and transfer taxes. Taxes can include capital gains, estate tax benefits, which can be lost or gained, and income tax. How the proceeds from the sale are invested may change the existing tax scenario and the availability of funds for future expenses. If you are selling a home because it can no longer accommodate your needs, such as having to walk up flights of stairs, consider moving to a smaller place with easier access. Sometimes the low property tax rate can be transferred; however, this is regulated on a county by county basis. This can be a tremendous annual expense saver.

Capital Gains

Federal capital gains taxes are 15%, but each state has different tax rates. (California’s has a maximum of 11%.) It is imperative that the capital gains is calculated before making a decision. Calculating the tax implications can seem very complex, but is the only way to determine what the sale’s net proceeds will be. Below is an example that incorporates a total capital gains cost of 23%. There are many individual factors that must be considered in the application of this example and I recommend you consult your tax advisor for an accurate estimate.

To Calculate the Cost Basis:

Property purchased in 1965 $50,000
Remodel in 1975 $40,000
Other capital (non-maintenance) improvements $10,000
Total Cost Basis $100,000


To Calculate the Total Tax Basis:

Sales price for property in 2007 $1,000,000
Tax exemption per spouse ($250,000)
Cost Basis ($100,000)
Estimated transactional fees ($70,000)
Total Tax Basis $580,000


To Estimate the Capital Gains Tax:

Total Tax Basis $580,000
  *23% (estimated)
Estimate Capital Gains (for cash sale) $133,400
Net Proceeds $796,600


Estate Taxes

If the property is owned at the time of death the cost basis rises to the actual property value on the date of death. This means there will be no capital gains tax. In the event a spouse passes away the living spouse may be given a 50% increase to the cost basis; however this depends on factors such as the will, trust or how title was held at the date of their death. There are also other estate planning issues that might also be considered at this decision making and assessment time.

Income Tax

The income tax rate may change based on how the net proceeds are used. Many sell their homes in anticipation of needing the extra funds for medical expenses. When weighing your options for how to invest the proceeds you must consider taxation as well as what your future needs may be and your projected cash flow.

Making the Decision

Remember, there is no going back on this decision! Before selling your house look at all the possibilities and measure the pros and cons of each with the idea of what the future is likely to bring. Your circumstances can change and so it is best to project what your future financial needs will be and make decisions based on all considerable factors. This is difficult to do. In fact, just the other day I got a call from a colleague who is also an experienced fee-based financial planner. He and his mother were trying to decide whether or not to sell her home. As we talked I realized he hadn’t considered the entire spectrum of future health scenarios. When planning for the future, make sure you are realistic as to what every long-term care option costs. I reminded my colleague to look at his mother’s needs—and to forecast probable future scenarios. His likely solution changed as he become aware of all his possible options and considerations. This phone conversation was a reminder of how expertise can make a significant difference in perception. I urge everyone to consult a financial planner before making the decision to sell a home.