If You Relocate For Retirement, Should You Sell Your Old House Or Keep It As An Investment Property?
Homeownership is an essential component of generational wealth, but how you use your house as a source of prosperity for yourself and your descendants varies from one family to another. The families that are so wealthy that they can afford to buy one or more real estate properties in each adult family member’s name are the exception to the rule. Most senior homeowners have children or other younger family members for whom the value of a single-family home makes a big difference. If your children and grandchildren live with you in the same house, financial considerations are probably one of the reasons you have chosen this arrangement. Likewise, if your kids live in a city that requires a road trip or a plane ride to visit you, it is probably because of their own employment situation; you can still help them financially by taking advantage of the annual gift tax exclusion. If you have decided to relocate after retirement, instead of aging in place, you should also think about your long-term financial goals for yourself and your family. A Tampa estate planning attorney can help you decide whether to keep your house as an income-generating asset or sell it and use the proceeds to fund your retirement.
The One Percent Rule Versus the Capital Gains Tax Deferral
Financial planners will often tell you that it is worthwhile to keep your house as an investment property if the monthly rental income you can get for it is at least one percent of the resale value of the house. You should not be too dogmatic in applying this rule, however, because real estate prices fluctuate. Getting $6,000 per month in rent on a $600,000 house is also wishful thinking; similarly, the four percent rule, where your retirement savings account balance should be so big on your 65th birthday that four percent of it will cover all of your expenses for a year, is also wishful thinking. You can get more money by renting your house to roommates as several bedrooms plus common areas than you can by asking a family to pay for the whole house, but the total amount in rent payments still might not add up to $6,000 per month; getting $5,500 per month in rent should not be a deal breaker if your long-term plan is for your descendants to inherit the house so they can live in it, rent it out, or sell it.
Another factor to consider is the capital gains tax deferral. If you sell your house, you can delay, for many years, paying taxes on the amount that your house’s value increased from the time you bought it to the time you sold it. If you owned the house individually, the maximum amount you can claim for capital gains tax deferral is $250,000, and if you and your spouse owned the house jointly, the maximum amount you can claim is $500,000.
Contact David Toback With Questions About Planning Strategically for Relocation During Retirement
A Central Florida estate planning lawyer can help you make a plan for renting out your empty nest if you decide to relocate when you retire. Contact David Toback in Tampa, Florida to set up a consultation.