Case Study Housing Decision During Retirement

Dated: 04/16/2018

Views: 285

A couple is planning to tour the United States in a travel trailer during their first few years of retirement. They are going to sell their current home now and purchase another home when they finish their travels.

An interesting exercise is to determine the optimum time of selling the home: now or when they're ready to buy their replacement home.

If they intend on traveling for more than three years, then, it may be a good decision to sell prior to the sojourn to avoid paying taxes on the gain in their home. IRS allows for a temporary rental of a principal residence while still keeping the $250,000/$500,000 capital gains exclusion intact. A homeowner must own and use a home for three out of the previous five years which means that it could be rented for up to three years, but it would need to be sold and closed before that three-year window expires.

If the travel will be less than three years, there is an option of selling now or later. Using the example below, the homeowner sold the home, paid their expenses and invested the proceeds in a three-year certificate of deposit until the replacement home was purchased.

case study retirement-1.jpg
As an alternative, if the homeowner rented the home, not only would they have income, the home would continue to appreciate and the unpaid balance would go down resulting in larger net proceeds. Based on a 5% appreciation and continued amortization of the mortgage, the net proceeds could easily be $40,000 more.
case study retirement-2.jpg
Obviously, there are a lot of considerations that affect the decision to sell now or later but in an appreciating real estate environment, being without a home for several years could affect the financial position of the owner in the replacement property. It is certainly reasonable to look at various alternatives before making a decision. Call me at (717) 800-1515 to help you look at the different possibilities and talk to your tax professional.

Blog author image

Tamer Gomaa

Tamer has been helping his clients with their real estate needs since 2005 and received numerous awards as the Top agent in his firm multiple years in a row since. Tamer speaks Spanish, Arabic & Frenc....

Want to Advertise on this Site?

Latest Blog Posts

A Home For Tomorrow

As people near or enter retirement, one of the decisions that typically comes up is whether to sell their "big" home and buy a smaller one. If you know anyone who has been faced with that situation,

Read More

Now Is The Time Vacation Home Buying

Now is the Time – Vacation Home BuyingWith spring quickly approaching you might be dreaming about owning a vacation home or cabin. The thought of searching for a perfect location and financing

Read More

Case Study Housing Decision During Retirement

A couple is planning to tour the United States in a travel trailer during their first few years of retirement. They are going to sell their current home now and purchase another home when they

Read More

Mortgage Rates Under 4 Percent Really

Most home buyers, especially first time home buyers, are unaware that at times...  Mortgage rates can be discounted and reduced, notably.  Almost like a "sale" on mortgage rates.;

Read More