Maximizing capital gains tax exclusion on sale of my house
I am considering selling my house and downsizing to a rental or perhaps buying something else. My house was purchased in 1992, and has appreciated a great deal. I met with a CPA and I may owe upwards of $200k in taxes when I sell. I'm single and bought out my ex's equity 5 years ago. I was hoping that the fair market value that we agreed on in our mediation would be my basis, but alas, I was mistaken. As a single person, I can exclude $250k from the proceeds from tax. My CPA estimated a taxable gain of $683k. I can't be the only person in the Bay Area to face this. I read on a blog a potential tactic of making my adult son a part owner in order to exclude another $250k. I need this money for my retirement. I'd love to hear from anyone else who's gone through something like this. If you used a tax attorney or a real estate attorney to advise you, I'd love a referral!
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I have EXACTLY the same problem. And it's unfair since people who move a lot can use the $250K deduction multiple times. There should not be a penalty of hundreds of thousands of dollars just because you stayed in one house and didn't move. There should be a lifetime gains exclusion or ability for seniors to exclude more on a one-time basis. This situation contributes to our housing shortage too, since it prevents people from downsizing. They'd rather die poor and alone in these huge houses than pay capital gains so their heirs can inherit the full value. Looking forward to any answers.
If you sell, yes you will have to pay capital gains tax. Also a transfer tax. And the real estate agent's fee. Plus the cost to fix up the house and move into a hotel room while it is being sold. So you will lose a percentage in the sale. There are other ways to get money for your retirement out of the house. You could rent out a room or two. A little hard during a pandemic, but doable. Or you could get a reverse mortgage. You also may want to look into installment sales and monetized installment sales. I think you could also marry someone and get $500,000 exclusion. I hope you find a way to retire comfortably.
Several of my neighbors have created an in-law unit in their houses, usually in the basement, and live in it while renting out the remainder of the house. They avoid paying the capital gains tax, retain their very low property tax, stay in the same community, and best of all create an income stream for their retirement years, while living virtually rent free.