It takes strong reasons to get older people to sell their homes these days, and more than half of them say they'll never do it.
For those who do sell, they may want to use the equity in their home to pay for medical bills, get away from the hassles of upkeep and maintenance, or find a quieter place to live in a warmer environment.
But another reason is coming into play more and more: grown children who need help.
Baby boomers are finally getting used to retirement, and many of them have kids who already have families or are planning to have their own. And their homes may be the most important thing they have that can be used to help the next generation and the ones that will come after.
Why some people don't sell and others do
Realtor.com® research shows that baby boomers own between $18 trillion and $19 trillion worth of real estate across the country. This is about twice as much as millennials claim.
What is the best way for people in that age to pass on their wealth without taking a big tax hit? We want to know so we can give "warm hands" instead of "cold."
"Most people who are thinking about selling their home do so because they want to keep the value of the asset and leave something to their children." But the way and time of the sale can have very different tax effects, says Laura Cowan, head of 2-Hour Lifestyle Lawyer and an estate planning lawyer. Because the amount of money your heirs may owe the government depends on how and when you move the house, whether you do it while you are still alive or after you die.
If you give your kids the house while you're still living, they will get the full amount you paid for it, which could mean big capital gains taxes in the future. When you die and leave something to someone else, the value "steps up" to the market price. This means that the taxes are usually lowered or eliminated.
"Everything is different." "It might not matter as much right away if the kids don't plan to sell the house any time soon," says Cowan. "However, the step-up in basis can usually lead to a much better tax outcome."
Let's look at the case of a person who bought a home in 1985 for $82,800, which is the median price. It's likely worth $423,100 now that that home is priced in the middle. If they sell, this might sound like a lot of money, but based on their situation, they could have to pay capital gains tax on up to $90,000. But if the house is passed down after the owner has died, that tax might not apply because of the step-up in base.
This means that giving with "cold hands," as gross as that sounds, is often better from a tax point of view.
Make the most of your home sale with the Hersey Group.
