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Downsizing and Right Sizing

Mar 01, 2015 02:17PM ● By Glenn Allen

Once the kids have all moved out, downsizing that large house might be just the thing to kick off your next phase of life.  There are three main reasons to downsize, from financial reasons, accessibility improvements (e.g. eliminating stairs), and relocating to a more desirable location. There are many options to consider when making this move. My goal is always to provide my clients with insights and options to help them make the most informed decision regarding potential moves.

When considering a move, you want to be aware of several tax laws. I don’t profess to be a tax consultant; I am only sharing some ideas to think about. (I do offer my clients free tax and legal advice from a professional.  Contact me for the specifics.) There are several laws that can save you money. Many people have lived in their home for years and built up quite a bit of equity. Thanks to the Taxpayer Relief Act of 1997, you may be able to avoid paying capital gains tax on a portion or all of the gain you realize when selling your primary residence. It could be up to  $250,000 in profit for a single owner and $500,000 for a couple. The strategy would be to sell your larger home and buy a smaller, less expensive home. You could end up with some money in the bank, a lower cost of living, and a single-story home in a better location.

The second law that could save you money here in California is Proposition 60.  If you have lived in your home for years and your tax base is quite low, this tax initiative would allow you as a senior citizen to transfer the tax base value from a current home to a replacement property if certain requirements are met. This may result in substantial tax savings. Requirements include: 1) The replacement property must be your principal residence; 2) The replacement property must be of equal or lesser “current market value” than the original property; 3) The replacement property must be purchased or built within two years before or after the sale of the original property; 4) You, or a spouse residing with you, must have been at least 55 years of age when the original property was sold. I have seen couples save $400 to $500 per month.

Another potential strategy is to sell your current home and take advantage of the two laws explained above and purchase your next home with a reverse mortgage.  The benefit of this is you could potentially put a down payment of 40%-50% and never make another mortgage payment.  All you have to do is make your tax and insurance payment.  The benefit of this possible scenario is you would lock in your cost of living and keep the remaining cash in the bank to use for other reasons. I can recommend a local loan officer who specializes in this type of mortgage to prepare a possible loan scenario.

Recently I have had several retired clients sell their homes in the area and move to Heritage Point in Walnut Creek.  This is a great option.  You pay rent and have access to wonderfully cooked meals, great location, beautiful grounds, and walking distance to everything in Walnut Creek.  The food is so good one of my clients started gaining weight and had to cut back!

Glenn Allen, RE/MAX Real Estate agent, can be reached at [email protected], 925-709-1000 or visit, and