With roughly 12.5% of the population over 65 years of age, it is understandable that some people are thinking of downsizing because they may not need the amount of space they did in the past. There is something to be said for the freedom acquired by divesting yourself of things that have been accumulated over the years but are no longer needed. Should you downsize your home? It does have its benefits.
Moving to a less expensive home might provide cash that could be used to pay down debt, payoff or shrink your mortgage, or increase your investments for additional income or retirement savings.
Savings can also be recognized in the lower utility costs associated with a smaller home, not to mention, the lower premiums for insurance and possibly property taxes.
Going from the home where you reared your family to one of the new tiny homes may be a bit extreme, but downsizing to something that is two-thirds or one-half the size of your current home may certainly be reasonable. Downsizing might require you to move to a different neighborhood or city. This could be a positive thing depending on your interests, needs and lifestyle.
At one time, the IRS had a once-in-a-lifetime exclusion of $125,000 of gain from a principal residence but this has changed. Homeowners are now eligible for an exclusion of $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers who have owned and lived in their home two out of the last five years and haven’t taken the exclusion in the previous 24 months.
You should consult a tax professional to see how these tax laws affect your situation. If after consulting your tax professional, you think downsizing might be an option you’d like to investigate, contact me. I’ll help you crunch the numbers to see if it makes sense. Then I’ll show you how to get top dollar for your current home and negotiate the best deal on your next one.