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Is Downsizing Your Home the Right Move? 3 Questions to Consider

Updated: Dec 15, 2023

a man and woman sitting on a couch, thinking about downsizing your home

Homeowners may choose to downsize for a variety of reasons. Maybe you're tired of maintaining an older home, don't need as much space anymore, or are just ready for a change. For some, downsizing your home for retirement becomes an attractive option.

No matter the motivation, this is a big decision involving many financial details.

Are you contemplating a simpler lifestyle and wondering if downsizing your home could be the solution? Here are three key questions to help guide your decision.

1. What Are the Costs of Downsizing Your Home for Retirement?

If you own your home, you'll pay a real estate agent's commission to sell. Before moving, you'll probably need to resolve deferred maintenance, do a deep cleaning, and spruce everything up. This might involve painting, landscaping, and staging.

The move itself will cost money, and if you're buying a smaller place, you may pay mortgage closing costs. You'll probably also spend money to personalize your new home with new furniture and decor. If you're considering downsizing your home for retirement, you may also want to factor in the costs of age-friendly modifications like grab bars or a walk-in tub.

2. What Would It Cost to Stay in Your Current Home?

The time and money you'll spend to maintain your current place will add up over the years. Figure out your estimated costs. How do they compare to the costs of the new place you're considering? If you're considering downsizing your home for retirement, consider the long-term costs of staying put, such as increased utility bills and potential renovations to make your home more accessible as you age.

3. What's the Tax Impact of Downsizing Your Home?

Federal capital gains tax applies to a profit of more than $250,000 (single filers) or $500,000 (married joint filers) above your home's cost basis when you sell. Also, consider property taxes: Will they be higher or lower after you move? If you're downsizing your home for retirement, you may also want to consult a tax advisor about how the sale of your home could impact your retirement income.

Navigating the Complexities of Downsizing Your Home for Retirement

These are just a few details to consider when managing and planning for your long-term comfort and stability. Especially if you're considering downsizing your home for retirement, it's crucial to weigh all these factors carefully.

Do you have any questions we can help with? Reach out anytime.

Check out our Cash Flow Hacks podcast to learn more about Tax-Free Retirement for Entrepreneurs.

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