As I work with many of my retiree clients, it’s common for them to consider selling their current homes. The reasons for this are numerous and may include buying in a dream location, downsizing, moving to lower taxed states, moving closer to their children and moving to retirement communities.
What You Need to Know
The higher the tax basis of your home, the less you will be taxed at the time of sale. Typically, any amount you roll over to a new home won't be taxed, but any gain over your basis that is not reinvested in your new home may be subject to taxation. Also, if you inherited your home from a parent, your basis may be based on the value at the time of death of your parent.
Hopefully over the years you have saved some of the receipts from loan documents, loan refinancing documents and home improvements. Also, don't forget to include information on any previous home's value you have rolled into your current home. Your basis will typically include the home's original purchase price, but also may include certain fees and expenses that were paid at closing.
Here are a few things (and this is not meant to be all inclusive) that can further increase or decrease your homes basis:
- Home office depreciation
- Insurance proceeds from an insured loss
- Money received to give an easement on your property
- Additions or Improvements to your home
- Improvements to prolong the life of your home
- Government Assessments to add street lighting, curbs etc.
- Repairs after hurricane or fire damage
- Legal fees to defend title
Its always best to think about your home's basis well before you need the numbers. After a sale, when it's time to file tax returns, everything gets rushed. Make sure you plan ahead so you can have accurate facts and help to minimize your taxes. We recommend that you check with your accountant to confirm any details related to your home's basis.