Selling a House to Pay for Long-Term Senior Care: A Guide

If you’ve noticed that your senior parent needs more help to manage their day-to-day activities, you may be considering long-term care. This can be a good solution, as assisted living, memory care and skilled nursing communities provide expert care, an active lifestyle and friendships with other seniors. Many facilities also do residents’ chores and housework, leaving seniors more time to enjoy retirement.

However, the decision to move into senior care can bring up another problem: how to fund that care. For many seniors, selling their home is one option. Older adults who sell their homes get the proceeds from the sale available for their senior care budget. They also free up other money that’s currently being used for mortgages, property taxes and home maintenance. 

The average price of assisted living in the United States is $4,500 per month, according to the Genworth 2021 Cost of Care Survey, and the cost of a semi-private room in a nursing home averages $7,908. Additionally, 20% of today’s 65-year-olds will need long-term care for longer than 5 years. Given how expensive this care can be, it’s important that you understand all the ramifications of selling a house to pay for senior living. 

This guide has information to help you decide when to sell a home to pay for long-term care, the documents you need and the financial implications of this decision. You can also find information about other ways to finance long-term care and how to get professional help for your sale. 

When Is the Right Time To Sell Your Parent’s Home To Pay for Care?

Many factors determine the right time to sell your parent’s home. The largest factor is likely to be the real estate market. In July 2022, the average U.S. home was on the market for 21 days; however, this can vary greatly depending on where you live. You may choose to sell to take advantage of a hot market. However, many more personal circumstances can influence whether you sell before or after moving into a senior living community.

Reasons To Sell Before Moving Into Senior Living

You’ll Have Fewer Expenses Once You Move

If the home is sold before moving into senior living, there’s no need to pay for upkeep of the house at the same time as you’re paying for senior care. If the home takes longer to sell than expected, having two sets of bills can be a big drain on your parent’s budget. 

You Want To Pay Down Other Debts

If your parent has other debts, such as medical bills, it can be helpful to sell prior to moving into senior living. The proceeds of the sale provide a lump sum to pay off debts. Once any bills have been settled, you’ll have a clearer idea of how much money is available for senior living. 

Reasons to Sell After Moving To Senior Living

Your Parent Needs Urgent Care

If your parent can no longer live alone or has been hospitalized due to an accident or illness, it may not be feasible to wait. In these circumstances, it’s best to make the move into an appropriate community and sell the home later. 

The Home Needs Substantial Repairs

It’s much easier to complete renovations and repairs if the house is empty. If you plan to stage the house to receive a higher offer, it’s also a good choice to sell after your parent has moved out. 

You’ll Help Your Parent Manage Stress

Living in a home that’s on the market can exacerbate the stress of a transition into senior living. For instance, the homeowner must find somewhere to go during open houses and viewings. Regular interruptions may increase the pressure or sense of difficulty that your parent may feel. It could be far less stressful to move into a senior living community before potential buyers  start looking at the house.

You Could Ensure a Faster Sale

Real estate agents believe homes that are decluttered and staged tend to spend less time on the market. It’s much easier to keep homes in this state when no one is living there. 

A Home Seller’s Checklist

Keeping track of everything that needs to happen when selling a home can be difficult. When you’re selling to pay for long-term care, there are even more things to consider. This checklist can help  ensure you ask the right questions and don’t forget any factors when selling the home. 

Download PDF

What Documents Do You Need?

Documents You Definitely Need

• The home’s sales contract: This confirms that your parent owns the property. It also lists when it was purchased, the purchase price and any terms and conditions that were included in the original sale. 
• Home appraisal: This is a professional assessment of the fair market value of the home. The purchaser needs this to organize financing. You should also provide the purchaser with the appraisal from when the home was last purchased.
• Manuals and warranties: Provide the buyer with manuals and warranties for any appliances in the home, including the stove, fridge, washer and dryer. 

Documents You May Need

• Mortgage statement: If money is still owed on the home, ask the lender for a mortgage statement showing the payoff amount. This will help you calculate estimated proceeds from the sale.
• Homeowners insurance documents: Be transparent with the buyer by providing proof of homeowners insurance plus any claims that have been made. This gives them information about damages and repairs and lets them know how much their homeowners insurance is likely to cost. 
• Maintenance records and receipts: Provide maintenance receipts, dated records of the most recent painting, gutter cleaning and window washing, as well as utility maps for electricity and gas systems. This shows the buyers what’s recently been improved as well as where they may need to make repairs when they move in. 
• Utility bills: A purchaser may ask to see past utility bills to get an idea of their monthly budget. While you’re not obligated to provide this information, it can help a potential buyer make their decision.
• Homeowners Association records: If the home is part of a development, the buyer needs to know about the HOA prior to purchase. You should provide them with any HOA documents your parent has, including bylaws, rules and regulations, dues amount statements and copies of the minutes from HOA meetings for the past 2 years. If your parent doesn’t have these readily available, the HOA should be able to provide them.
• Capital improvement receipts: Gather receipts from any big improvements, such as remodeled bathrooms or kitchens. You should also have receipts for a new roof, a pool or any other additions. This shows the buyer how the home has been improved. Capital improvements can also mitigate capital gains taxes, so these receipts will be needed at tax time.
• Pre-inspection report: You can arrange an inspection of your home before you put it up for sale. This can let you know about any issues that would otherwise be a surprise when the buyer inspects the house. If you choose to get a pre-listing inspection, you must tell the prospective buyer about any issues that arise. 

Financial Implications of Selling a Home To Pay For Long-term Care

Selling a home to pay for long-term care is a sensible choice for many seniors, but the decision may have financial implications. Understanding the taxes you’ll have to pay, as well as how the proceeds can impact your eligibility for benefits, can help you make an informed decision about the sale. 

Taxes

Homeowners may owe both state and national capital gains taxes after selling their home. If you’re required to pay these taxes, there will be less money available for senior care. 

Capital gains are the profits earned after selling an asset that has increased in value. Short-term capital gains are for investments owned for less than a year, which are taxed as part of your normal income. But property owned for over 12 months is considered long-term capital gains, which are subject to capital gains tax. 

Tax matters can be complicated when selling a home, so it’s best to get expert advice from a financial advisor, accountant or elder law attorney. Professionals can advise you on the taxes in your state and how to minimize your tax bill. 

Long-Term Capital Gains

Seniors are exempt from capital gains taxes on the proceeds of their home if they meet one of the following criteria:

• Primary residence: If your home was your principal place of residence for at least 2 of the last 5 years, the IRS allows you to exclude a certain amount of the proceeds. In 2022, that amount was $250,000 for an individual and $500,000 for couples filing jointly. 
• Inability to live independently: The IRS grants exceptions for people who have become unable to care for themselves. If the house was your primary place of residence for at least 12 months out of the last 5 years, you can count time spent in a licensed care facility towards the 2-year residency requirement for a primary residence exemption. 
• Limited income: Taxpayers on a limited income don’t have to pay capital gains tax. In 2020, the income limit was $40,400 for an individual or $80,800 for qualifying widows and couples filing jointly. 

If you’re not eligible for an exemption, the rate for capital gains tax is no more than 15% for most individuals. This is less than income tax rates, which helps keep the amount you owe low.  

State Taxes

Some states, including Florida and Texas, don’t tax capital gains. But in most states, you’re liable for state capital gains taxes in addition to the federal tax. As every state’s rules are different, it’s best to speak to a tax advisor to learn how this can impact the sale of your home. 

State capital gains tax rates are between 2.9% and 13.3%. Certain states have additional rules around capital gains. In Vermont, for example, you can deduct 40% of capital gains for assets held for longer than three years. In Washington State, real estate and retirement savings are exempt from capital gains taxes. 

VA Benefits

Some veterans may be entitled to a number of benefits, including a veterans pension and Age and Attendance benefits. To be eligible for these payments, an individual’s net worth must be below a certain limit, which was $138,489 in 2022.

If the home is the veteran’s principal place of residence, it’s not counted among their assets. Once the home is sold, however, the proceeds become an asset — unless they’re used to purchase a new home within the same calendar year. If the home sells for a substantial amount, your parent may no longer be eligible for VA benefits. 

The legislation has special asset rules for veterans who aren’t living in their primary place of residence due to health concerns. If the senior lives in a nursing home, other care facility or the home of a family member to receive health care, their home won’t be counted as an asset even if they no longer live there. But if the property is occupied by renters, the rental income is counted toward their income limit. 

Given the complexity of the rules around assets and home ownership, it’s best to speak to an expert before making any decision about a future sale. The local VA center can answer any questions from both yourself and your parent.

Medicaid Eligibility

Medicaid is a government program that helps low-income individuals pay for health care services. It can help fund nursing home care and, in some states, pay for other types of long-term care — including assisted living and in-home care. 

Medicaid is funded jointly by federal and state governments, then administered by states. This means eligibility criteria can differ depending on where an applicant lives. However, all applicants must meet financial eligibility requirements and the proceeds from a home sale can have an impact on whether you meet these criteria. 

As Medicaid eligibility rules can be complicated, it’s a good idea to speak to an elder law attorney or Medicaid planner about the best way to sell your home. 

Financial Eligibility

Medicaid applicants must have income and assets below the state limit to be eligible for Medicaid. Income includes wages, Social Security benefits, pensions and income from an IRA or 401(k). Countable assets include cash, stocks, checking accounts and real estate where you don’t reside. Household furnishings and burial trusts are some of the assets that aren’t counted. 

If the Medicaid applicant or their spouse lives in a home as their primary place of residence, the property isn’t included as an asset. The home equity must also be below the home equity limit. This ranges from $636,000 to $955,000. California is the only state that doesn’t have an equity limit on a principal residence.  

Once the property is sold, the proceeds become an asset. In most states, the asset limit is $2,000 for single applicants and $4,000 for married couples. People with assets above those amounts aren’t eligible for Medicaid. However, in many states you can spend-down your assets. This works by spending excess countable assets on non-countable assets, such as paying down debt and prepaying funeral and burial expenses. It’s important to check the local rules in your state before deciding to take this step. 

Medicaid Look-Back Period

Medicaid also has a look-back period to ensure applicants don’t get around resource limits by selling their home for less than the fair market value. In most states, the look-back period is 60 months or 5 years. In California, the look-back period is only 30 months. This period starts on the day you apply for Medicaid.

Any financial transactions or asset transfers that occur during the look-back period are subject to review. This includes donations and gifts, in addition to transferring or selling property for less than the market rate. 

If you do give away or sell your home for less than fair market value, it’s known as a look-back rule violation. In these cases, Medicaid assesses a penalization period where you’re ineligible for benefits. This is based on the difference between the home’s sale price and a fair market value. There are options for avoiding the penalty, including asset recuperation and an undue hardship waiver. These are difficult to qualify for, so you should speak to a Medicaid planner or elder law specialist for guidance. 

Special Considerations When Selling a Home for Someone Who Has Dementia 

If your loved one has Alzheimer’s disease or a similar form of dementia, there are additional challenges to selling their home. Generally, only the homeowner can transfer the home to a new owner. If your parent is having trouble understanding the need for the sale, or if a doctor says they’re no longer competent to sign the paperwork, you may not be able to sell the home.

However, some options allow you to step in and make decisions for your parent. 

Power of Attorney 

A power of attorney allows a trusted person to act on behalf of the senior. This trusted person is called the agent, while the senior is formally known as the principal. There are different types of POAs, including a general and a durable POA — the latter of which is oriented toward end-of-life decisions. Regulation regarding power of attorney varies across states, so you should look into your individual state guidelines. 

Keep in mid that a POA can be complicated, especially when you will be acting on behalf of someone who’s incapacitated. It’s often best to seek help from an elder law attorney to ensure you’ve considered all the variables and created the right type of POA.

A POA must be signed by the principal. If they’re deemed incompetent, they won’t be able to sign. Because of this, it’s best to arrange this paperwork soon after your parent’s diagnosis. 

Guardianship

If your parent is no longer able to sign a POA, you can petition for guardianship. To do this, you’ll have to prove that your loved one is impaired and unable to manage their property. After guardianship is assigned, you can sell property and oversee other decisions for your parent. However, this process can be lengthy and expensive. Again, an elder law attorney can help you through the process. 

Managing the Emotions of Selling a Home

Managing your own and your parent’s emotions through the sale of a house can be challenging. It’s likely that everyone has a lot of memories that make it hard to say goodbye to the home. Many seniors also have conflicting emotions about moving into senior care that come up during the process. Consider these tips to help you and your loved one navigate the journey.

• Wait until your parent is ready: If it’s at all possible, you should wait until your parent is ready to sell. Have a conversation about the possibility early so they have time to get used to the idea and feel comfortable about the decision.
• Talk openly about their situation: Have an earnest talk about your parent’s needs, fears and what they want to achieve by selling the house. It’s also important that you understand their financial position and whether they still owe money on the house.
• Emphasize the benefits: Make sure your parents understand how much they can gain by selling their home and moving to long-term care. Talk about financial and lifestyle benefits, as well as the time and energy they’ll save by not having to maintain the property.
• Clarify how much they want to be involved in the process: If selling the home will be too stressful or difficult for them to manage, your parent can nominate someone as power of attorney to handle the details.
• Take care of their belongings: It’s likely your parents have accumulated a lot of possessions over the years. Take your time sorting through everything. In most cases, belongings can be sold, donated or thrown out. However, make sure special items are kept for their next home or passed on to family and friends. 
• Pick the right real estate professional: Choose a real estate agent who understands all the nuances of selling to move into long-term care. They should be able to help you arrange an estate sale, hire packers and organize cleaners, leaving you with fewer tasks.
• Keep the process transparent: Everyone involved should read and understand any contracts. Even if your parent is still willing and able to be involved in the sales process, you’ll be reassured if you see what they’re signing. 

Other Ways to Finance Long-term Care

For some seniors, selling their house isn’t the right decision. There may be a spouse or other family member living in the home. Your parent may also need funds while you wait for the house to sell and the transaction to finalize. Thankfully, there are other options to help finance senior care. 

Bridge Loans

Bridge loans are short-term loans designed to provide funds while waiting for the completion of other financial transactions. It’s most often used when a person buys a new home before the original house has sold. 

For seniors, a bridging loan can help provide funds to move to a long-term care facility now, even if the sale of their home is taking a long time. This alleviates pressure to sell quickly, allowing your parent to wait for a good offer. It can also allow them to move while waiting for the sale to finalize. 

It’s important to remember that bridge loans are unsecured. This means that the interest is likely to be higher than for a mortgage. Some lenders let multiple family members apply for a bridging loan. This would allow you and your siblings to be co-borrowers, helping to secure the loan without putting a financial strain on your parent. 

Immediate Annuities

Immediate annuities are long-term arrangements between investors and insurance companies. In these agreements, the investor provides a lump sum to the insurance company. In return, the insurance company agrees to pay the investor regular monthly payments. 

This can be a good way to protect the proceeds of a sale, especially if the home sold for a significant amount. The amount of monthly income you receive from an annuity depends on the lump sum amount and current interest rates. Your age and gender also have an impact. For example, women tend to live longer than men, so they receive a smaller monthly amount. 

Other Financing Options

Other options for paying for long-term care include:

Finding the Right Help To Sell Your Home

It’s often easier to navigate this journey with expert help. Even if you understand all the steps involved, delegating part of the process frees up your own time. This reduces your stress and allows you to concentrate on more personal actions, such as selling belongings, selecting a senior care community and settling your parent into their new home. 

Real estate agents and elder law attorneys are the professionals most commonly sought out for assistance. 

Real Estate Agents

Real estate agents are experts at selling homes. They understand the real estate market in their local area and can give you advice about how to get the best price for a property. A good agent can tell you if renovations are worth the money or if you should sell as-is. They can also help you with staging the property and advise you whether you could sell with the furniture included.

Many real estate agents are gaining expertise in helping seniors downsize or sell their homes to pay for long-term care. The National Association of Realtors has a Seniors Real Estate Specialist designation that can help you identify professionals with specialized knowledge. You should also look for someone with experience selling homes quickly for top market value. Visit the National Association of Realtors member database to find an agent in your local area. 

Elder Law Attorneys

An elder law attorney can help you set up trusts, powers of attorney and guardianships. They also have knowledge about Medicaid and other benefits and can give you advice on whether it’s in your best financial interest to sell your home. Having the advice of an attorney can ensure that any arrangements you make are legal and help protect profits of the sale.The National Academy of Elder Law Attorneys keeps a database of elder law specialists. You can find someone in your area who understands the nuances of your state’s laws. If you’re worried about the cost of an attorney, many states provide free legal advice to seniors. Check with your Area Agency on Aging for local resources.