Your grandchildren are growing in numbers and size, but with your children out of the nest, perhaps the thought has crossed your mind that your own home is too big and downsizing is on the horizon. But many in the boomer generation (born between 1946 and 1964) face the double duty of having to make the tough decision about your own parents; how to care for them, and for many, how to sell their homes to ensure that appropriate care can be funded properly moving forward.
For many, the parents of the boomer generation have lived in their homes for 40, 50, sometimes 60 years, and it’s extremely difficult emotionally to let go of so many memories that become intertwined with these homes. But we are living much longer, and with that age comes the risk of living alone, or in the wrong type of home suitable for the realities of living into our late 80’s or 90’s. Selling is becoming the best option for these late years.
If you are facing this life-planning decision for your parents, you must realize that there is a critical difference between downsizing from your own home and selling your parents’ home: you have the benefit of knowing the history of what you have done to your property, how it is managed in your estate, and how you acquired it.
Selling Your Parents’ Home - Avoid These Pitfalls
For your parents who have lived in homes for decades, that history may hold some surprises as they may have made decisions when you were a child that you were completely unaware, and remain so to this day. Those decisions can now present great risk to selling that property when you least expect it and when you most need the funds. Now is the time to do the research to avoid some of the real pitfalls I’ve encountered that have either completely blocked the sale of a home, or that nearly did without causing some high-anxiety, last minute scrambling.
Many of us will face the transition point when we become the caregivers for our parents. All of the real-world examples above are good reminders that a little planning can go a long way to manage the process and to provide the best care and enjoyment of life that your parents deserve.
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About Kelly Crowley
Kelly Crowley is a Licensed Real Estate agent for Keller Williams Realty.
Kelly has lifelong ties to the area and a keen understanding of the marketplace through her personal history and extensive knowledge of the varied communities she serves. Kelly invests her passion for the area by serving her clients with the utmost integrity, honesty and expert guidance in their real estate endeavors. When you’re seeking an agent who will put your goals first, call on Kelly Crowley. firstname.lastname@example.org c. 734.274.0707
1/1/2020 2 Comments
In my last post I referenced the role that capital gains can impact how many baby boomers plan for the future. Obviously, maximizing the net profit is the ultimate goal whether it’s for your inherited land sale, selling your home when you downsize, or executing estate sales. I’ve been asked about capital gains repeatedly over the past 12 months, so I consulted Steve Withers, a Partner and Estate Planning expert at Coogan, Smith, LLP in Attleboro, MA, to consult in providing a short summary of the strategic tax options available for any seller to consider. The good news is that there appear to be a couple of options that could significantly reduce or even eliminate any tax obligations if planning is done correctly.
One of the more well-known IRS exemptions is the one-time, $250,000 ($500,000 for joint filers) exemption all taxpayers receive for the sale of a home. This exemption allows up to these amounts in capital gains to be tax exempt. But taxpayers can use it only once. So what other strategies exist that can also help to minimize or eliminate capital gains?
Your Current Income (Tax Bracket) Matters
One of the easiest strategies to consider in the planning phase is the timing of a sale with respect you your (or perhaps your parents) current income. The IRS exempts those individuals from any capital gains tax at the Federal level, which would save sellers between 15% and 23% of the net sale price if long-term assets are sold (ie home, land, personal property held for more than 1 year). In Massachusetts. It is more difficult to avoid state long-term capital gains taxes (5.1%), but as always consulting with a tax professional to confirm your specific situation is always a good idea.
Property Basis Step Ups for Trusts and Inherited Property
There is a second, slightly more complicated option that might allow you to avoid Long Term Capital Gains tax at both the Federal and State level. This provision in the tax code allows inherited property to "Step Up" the basis (the value of the land) to the current market value upon the date of inheritance when it occurs. This means that instead of showing that your home, land, etc was acquired for $10,000 40 years ago (as an example), when it passes to a trust or through inheritance, the new value would be listed at current appraised market value. Let's say $500,000 for easy math. This way, if you sold the land for $500,000, and it is valued at $500,000, your net gain is 0. There would be no tax required. It should be noted that Stocks and Bonds transferred in inheritance are treated by the IRS the same way as real-estate, but that holdings in retirement accounts (IRA, 401k), are not.
There are some additional steps to the second option above that require more detailed questions to be asked and a review of the history of the prior property transfers, such as the creation of living trusts, credit trusts, or whether property is held jointly, but both options above can be viable and should be explored sooner rather than later.
For real estate deals in Massachusetts, where the average real-estate sale can easily fall between $500,000 and $1,000,000, the potential tax savings could be in the five or six digit range.
With the uncertainty of long-term rates, and reports that the housing market is showing some weakness, there is no better time than now to create the plan that maximizes both the sale price and profits of what is most likely your largest personal asset.
About Kelly Crowley (www.kellycrowleyrealtor.com)
Kelly Crowley is a Licensed Real Estate agent for Keller Williams Realty. Kelly has lifelong ties to the area and a keen understanding of the marketplace through her personal history and extensive knowledge of the varied communities she serves. Kelly invests her passion for the area by serving her clients with the utmost integrity, honesty and expert guidance in their real estate endeavors. When you’re seeking an agent who will put your goals first, call on Kelly Crowley. email@example.com c. 734.274.0707
About Steve Withers
STEPHEN K. WITHERS, JR., is a partner with the firm, whose practice covers a wide-range of legal fields, and focuses primarily in Estate Planning and Administration, Probate Law, Real Estate, and Small Business and Non-Profit Organizations. Steve is actively involved in serving the Greater Attleboro Area as a member and present chairman of the Attleboro School Committee, Rotary Club of Attleboro, Massachusetts (President, 2011-2012), a Director of the United Way of Greater Attleboro/Taunton, and as a member of the Sturdy Memorial Foundation, Inc. He is a member of the Attleboro Area, Bristol County, and Massachusetts Bar Associations.
About Kelly Crowley : Kelly Crowley is a Licensed Real Estate agent for Keller Williams Realty. Kelly has lifelong ties to the area and a keen understanding of the marketplace through her personal history and extensive knowledge of the varied communities she serves.