Share This Episode
Finishing Well Hans Scheil Logo

Tax Laws for Selling your Home in Retirement

Finishing Well / Hans Scheil
The Truth Network Radio
June 13, 2020 8:30 am

Tax Laws for Selling your Home in Retirement

Finishing Well / Hans Scheil

On-Demand Podcasts NEW!

This broadcaster has 257 podcast archives available on-demand.

Broadcaster's Links

Keep up-to-date with this broadcaster on social media and their website.

June 13, 2020 8:30 am

Are you thinking about selling your house in retirement and worried about the taxes? Hans and Robby go over capital gains taxes as well as the exemptions to these taxes! They also talk about reverse mortgages and who it might be right for. 

Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on Cardinal for free!

You can contact Hans and Cardinal by emailing or calling 919-535-8261. Learn more at 

Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore
Rob West and Steve Moore

This is Robbie doing more from a Christian card I am king in pursuit where we hear how God takes your passion and uses it to build the kingdom your chosen Truth Network podcast is starting in just a few seconds. Enjoy it and share it but most of all, thank you for listening and for choosing the truth network you're listening to the Truth Network and Welcome to finishing well brought to you by Cardinal guy, certified financial planner belonged to child best-selling author and financial planner helping families finish well over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes. Now let's get started. Finishing well welcome to finishing well today we fascinating question that post office at some point in exactly where you finish. Well it just seems like in talking to seniors and friends and my family that is a big consideration do we sell the house and go to Florida to retire or where we gonna retire or at what point we quit taking a house and and what are some of the tax things are involved with Adam and reverse mortgages and all sorts of places where you had in this where do we finish well today, but I think it's an interesting point that God this is really huge to God and the bet is Hebrew letter for home and in the whole Bible itself starts with a bet. This is in the beginning and that kind of that. But sound you hear there because you only think about is your hearts try to be home and so the number one you know topic for songs of all time.

You might think it's love.

But it's actually home in some shape or form into slight you know so many hymns you can think about about going home as a home is precious to our hearts because we're gonna make God's image in homes a big deal to him. And so as we get to this stage, there's a lot of misconceptions and a lot of urban legends and a lot of misunderstandings and that way to start off with one banana tax laws. If you sell your home. Yeah, we would brought me to bring this topic to me today were talking about income taxes for the 62 classes that each week we covered different chapter in the book and this is on income taxes, and we been doing the show for a few years and we've covered a lot of the obvious topics will go over them again in this one just came to me. I have a client who is been a client for 70 years and she just up and sold her house. She been talking about it but more like down the road in the future and I think one of the neighbors or somebody came in just wanted by her house and she made a pretty substantial profit on face of substantial her and she lives in Cary, North Carolina which homes are typically above average are more expensive in that area and she on the she lived there like 40 years and she owned it with her prior husband and she's been divorced for several years and so she Artie sold the home and she really called me to just find out how much tax issues can know because she's done all her financial planning. She's got long-term care taking care of. She's got plenty of savings and retirement accounts and she's distributing them over time sheet. She's got more than enough money. She lives very simple and so she decided to move in with her daughter and grandkids and she has a son in the areas well and what she's going to do with the proceeds of the sale of the house is just give it to her kids. After one after the other, which I thought was terrific as what she wanted to do and before she did that she wanted know how much income tax using O on the sale of this house and I didn't even need to look it up. I said Pat, this is pretty simple.

Nothing zero and she was just shocked me she she she knows me well enough to know that I'm just like a giver and a complete joke on herself and her neck and just giver like a vice 800 and I knew the numbers on this should paid about $130,000 for her house. Like many moons ago back in the 70s or 80s and she had gotten.

I think $250,000 which she sold which was really a bargain in the neighborhood she's in and all I can put any case, she thinks she can have big tax bill in of zero and so she's not unique that I find and you know and I know that you had talked about some and I find it a lot of people just don't know is it isn't just the text is not written.

You owe nothing on the gain on a cellular house so a minute teach you all what it is because I can do it right out of my head.

It's pretty simple so we can get that in. Maybe we had to do that before you talk about the lady you told me about Justin preparing for the show galaxy and bite my brilliant thought about much that she had a similar portion friend of mine that's a widow and and she was like on think about myself, house. But then I got a buy another house coming out of all this money and run up a bunch of tax and I can't afford to be that and I'm listening. You know thinking, oh yeah that's right that's way that was but you know is I was listing to you. I found out then things change. 20 years ago. Yet more than 20 years ago we went with my dad and mom sold their final house right before retirement.

In the mid-80s they had to pay capital gains taxes on all the gains they've made, not only on that house, but on the houses they had lived in prior to that, so they all just kind of rolled forward and there's a lot of people that think that's the way the law still works and it was the mid-90s. This was changed in the dollar amounts of the exemption haven't changed one nickel since then, the rules and that sort of thing so I can just tell you what they are is for one person, you got a $250,000 exemption gain and for two people are married couple got $500,000 and what that exemption.

What applies to his that's the gain on the sale of your personal residence in order to qualify for that you have to have lived in the personal residence to have the last five years, yet so you know, it would seem, it would appear my friend meets the Tricia death.

We just come aghast her house. It 90,000 $200,000 when they bought it 20 some years ago, maybe almost 30 and then we just casted over $200,000 of value. You don't really know those things exactly that it's it's over. In the same area where I am in the Triangle area in the that sounds about right. It's a nice neighborhood may surprise you may be worth 300 sheet sheep. She's probably been talking to some people and somebody probably did sell their house and make a bunch of money and they were uncertain of the tax to she's got a $250,000 exemption for the growth so so for basis was 90 grand and it sells for 240. She she's well within the parameters of 250 and yes she let's just say it was worth 350 or something just some ridiculous amount and it was over the 250.

There are some things I would do that I would study and because when her husband died in like think 2013 as you told me there was actually she was eligible for a stepup in basis of the value of the house for half the value of the house concealed half that she on the other half is so complicated, so we could go back in Polian part of his 250 to house to help her snatch it somehow or another. So it's a pretty liberal thing and you can do this every two years so you know it's hard to make a gain of $250,000 on the house of two years, and especially in these damn times and some real estate is worth less now than it was six months ago. Clearly, the lower set so for people that were entering in the age of retirement that you know they actually went have their houses you know is a liquidated that asset to in a finish well, so to speak at at and so him. Same story and you know you my friend. She kind of would like to stay in the house, she thinks, but her big upcoming it's all she lives on is her only Social Security in her Social Security so she is really small income, and an and I definitely lives in under that alone and so is she was looking at needing a new roof for new HVAC she's getting panicky like right back out to do some some I need to do here and no on think about a reverse mortgage from Psalm house. I would have the taxes but but then when I start talking about reverse mortgages. There's things there. I had always wondered about that, but you can help her listeners with some information along those lines will yeah and beef before we get to the reverse mortgage, you know, I want to talk a little bit about her in.

You know I I just find myself in light of the situation to know that maybe it was where the husband just died and you know or be a died several years ago. And maybe she's sick now and you know and then her daughter listens to my show or meets one of my clients or she knows what you know. Anyhow I'm there helping her in and I'm glad to help people in her situation, and I don't really even need to charge him and it sounds like she's going to need some good discount business sense about selling this house so I am in the one thing you talk about is that she go do some repairs to when you start valuing houses as an amateur. You're always going to value according to what the one down the street sold for in the one across the street and you know and then people can have a general idea what their house is worth and that number is typically for house in good condition. You know I myself am my home for sale and we spent six months paying people to come out and do all types of repairs and their small repairs in Houston look in disrepair, but it just in order to get it ready for sale to get that top dollar. You got to do a number of things and then while you're doing that we didn't do everything that was recommended. So then you gotta go through pick through a list so what she's probably going to need help with is are we gonna do nothing. She's can in fact sell the house. Are we gonna do nothing and just sell it as is and accept a lower price.

Are we going to spend money to fix things so that we can command a higher price. But if we do that. Are we going to make enough getting the higher price to pay for all the money we put in so that's is not a clear-cut decision she's gonna need some was in business sense doing that you know II would help her a bit.

But you know if if she was going to sell the house and she is worried about a big tax bill and now she learns she can have no taxes and then it was appealing to her to perhaps move to an apartment or moved to the other senior living apartments and there's all kinds of things that are out there that she could shop for and if she does that she's going to go in there with you over $200,000 in cash at her disposal that she would need to invest but you know that's becomes a little easier to make a rent payment.

You know something like that.

So since it should. She's going to need a bit of financial advice, but the last thing that she really needs to worry about is taxes. That's which is really good to nice out today show an hour talking about where, when we finish well and you know what are some of the tax implications of that all this information we talk about always found in Hans's book the complete cargo guide to planning for and living in retirement again brought you by Cardinal Cardinal after guiding their website and email Hans first book are not just I got the situation I needed back, get into those rim reverse mortgages and some of the stories I think where we Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging Hans expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care. Just go to cargo and contact to schedule a live recording of finishing well your church Christian or civic group contact contact Cardinal Cardinal come back to finishing well certified financial planner child today where we finish well and was that look like from a tax standpoint we talked about the home is a big craving.

All of our hearts to make sure that we have a place that that we can call home and were comfortable that we feel secure and for Windows this is really you know it's a hard thing and it's on God's heart.

There's no doubt know this whole subject, but is an eminent this lady that you just speaking about so the gentleman was first your friend and then you knew them as a couple. He passed away in 2013. I think it's very noteworthy of you, you know, not only are you looking after Richard maintained a friendship with her.

Which is great. She's absolutely a dear friend and they were dear friends and at the end he initially and introduced me to Tammy now and will really yeah and we were in, then we are business partners for a period of time and so that we are real close and he had type I diabetes and and died in one of those about life insurance and an assistant hard it's been really hard but it just seemed like you know how I was his best friend. It would it would and I levy. I mean I love my friend anyway so I clearly will enjoy our friendship is on his account is no wonder she hasn't kept up the house. First of all, she's in her 70s. She's a widow. He obviously was in any shape to do it in the years leading up to 2013 when he passed, and then financially. All she's really got to live on is a Social Security check writing and pay all the bills and just keeping up the house keep a car buying groceries is doing all the things there just isn't a lot of room in there to call prepare people to come out and fix your house so you know when we talked about reverse mortgages.

And I know you'd mentioned that she had considered them and think that she only considered it because they just imagine if she's talking to you about this stuff is. I wonder where she's considered amending how far she's come along without me.

We don't really have to have the answer but no, but my sense is that people in her situation.

They need fiduciary dies and they need somebody that is looking after their interests more than the person selling something like a TV commercial incense call here working for free information about reverse mortgages and so I don't side about reverse mortgages like the bad guy is like any financial product, there's no such thing is good products and bad products and if they were bad products they would they would be legal there so is regulated by the federal banking commissioner. The insurance department or Securities and Exchange Commission financial products usually have bad financial products which you have is inappropriate. Financial products for different groups of people.

Okay so let's talk about who will reverse mortgage might be appropriate for and what I'm to do is simplify that is for somebody that's house rich and cash poor so and that counterfeits are me if you took your net worth is this, to say the house is worth $240,000 in her car is worth $1000 or 10,000. Most people don't even include that the car net worth it, which is will do it anyhow.

She's got a net worth of $260,000 and 250,000 of it is in your house so and she wants to live there. The rest of her life might be something we consider and if she does that all help her do outsell reverse mortgages, but I will. I know some people to do and I will help consider that. And then there's different types of reverse mortgages. And I'm certainly not can get into those all the different types but one of them is just a line of credit, reverse mortgage so she no issue. She would probably qualify for a reverse mortgage of about 150 $270,000 She's 150 was gone. The low end and if she got a line of credit, reverse mortgage, she would. She first was company about 10 grand for this minutes. It's not out of the hundred 50 with out of the ultimate proceeds from the sale of her house after she dies costs about 10 grand dinner reverse mortgage so they are cheap and they involve federal health charge at front, but they do but they just charge it against the wrong balance This is against the longer so she think she's borrowing 150 which is really Brown 160 K and I'm just man outnumbers up, but I know I'm not that far off. Okay.

And so now she's got line of credit is really against her house and if you want to go in the next day is at 150 grand. Give me a check. They would typically they're not rules on a mouse. But what I would think she would want to do, even before she does this is the price fixing everything in the house that needs to be fixed. She really needs to do that before.

She did send all this financing because after she sees that number. She may want to sell the house as is something like that. But in any case, let's just say that to fix the house because 30 g and I just put the numbers of the years together with the fact that the roof gone what I was under the roof and this is a 30 grant will then she could just go on about spending that 30 grand on the hundred 50s thousand dollars line of credit this year she's draw against that she would draw 30 grant and then she'd still have 120 sitting there at her disposal, not paying interest on money Avenue shipper should pay interest on the third are very front she's unpaid at out of her own money, but it's really 40 g because of the 10,000 asked him if I intend paying interest on that. To that I want.

There may be more than that, there may be other closing costs that I just let I'm just using 10 grand is a nice round number. When I've looked at him. We have a mutual friend that I looked at 14 and that that was right about with a number so yeah it is the interest is just going to be added to the loan balance so you don't have to make payments on a reverse mortgage. One of the questions that came up I was, shocked did not notice that in okay so now all the sudden sent happens to her. She's got a go to nursing facility or assisted living or something and she's left the house is just like Don Knight. She's single now if her husband still live and he had to go the nursing home she did but there's one of them still in the house or sheet you so if if if if is just one left the house. The other one was there.

Keep on living there. No payments, but now she is leaving. So now there's payments and so now is not to be payment services can be now withheld on the house yet alone comes it will sell the house and if you don't handle that because you can be in no shape of your nursing only animal that so than whatever the mortgage company comes in or that federal program.

I'm not exactly sure how the somebody comes in and just evaluates the house, Christopher sailing, a pair real estate commission wrong out maybe only thing is that her one of these deals. You know not to my anything but shame. When I defaulted on my SBA loan for Westside. Now I had a $2 million building that I paid to get the thing built right right because the bank was short money and based on they needed to liquidate the asset. I mean, I think they sold it for $630,000 right off the rest of the SBA and the charge it to me and and and so when you say that no delay can't charge it to your state so so they can't they're not going charge that to her estate or to her family or her. But what I am saying is whatever equity she had in the house.

It even that's why there only the lender hundred 50 grand and they can add tend to it for the lows and close closing so that it lender hundred and 60 so they got some real Christian there because she lives in another 10 or 15 years. You can have all this interest and on. So that story when you listen to the commercial that has already in the story don't own any payments until the last person leaves the house, but oh my goodness read the fine print that leave the house is not what you were thinking that they are talking about their you know it's it's something to really consider them and go in with your eyes wide open. It may be a good solution, but you know you need to know what's going on asked and insert as opposed to it. We want whenever you're evaluating a solution like reverse mortgage got have something to compare so one comparison is just to sit here and do nothing. Just worried about you know that what a lot of people do. By default, other option would be to not fix the house up and just sell it yet less and leave the cash and go somewhere and rent and that now she's going to be cash rich and house poor but it was $220,000 or something is not all bad. She could go somewhere and by that she's got a happy and get a brand-new small condo or something that's can be pretty tough to find over in her area. $400,000. Your sentence can eat up a lot of capital and then perhaps the reverse mortgage option so so you just look through her options, but it just she's got too much of the money tied up in her house. We we needed we would need to sit down and just figure out what would be the best thing for you know I just these reverse mortgages thereunder are much higher regulated now than they were even 5 to 10 years ago as a sense of the patent. The people that are selling them are not unscrupulous and their that they've gotta and they have a bunch of regulations they gotta follow about disclosure but still with all that it's not a lot different than the commercial is that people end up with these things and then five years later whole families, really regret settling today show. Basically is on taxes on the 864+ you can find that information in Hans's book the complete cargo guide to planning for and living in retirement, which is right there cardinal guide cargo and and there's a chapter there on taxes yeah and this is a big part of taxes is that this is one of the biggest assets that most people own specially retired people and you need to remember that you got have somewhere to live so and you know my situation. I'm trying to get set up at 61 into a house that I can just live in the rest of my life and I don't plan to go to a nursing home that I plan to get home healthcare agent on finish while at the home.

I that's all possible. Thank you for listening today. Don't forget, you get the podcast you can binge listen to finishing well there at that Syria you can tell Siri if you got Apple iPhone or your spot of fire wherever you want to find this system you want to listen to finishing well thank you from. We hope you enjoyed finishing well brought you by cardinal visit cardinal for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care and life insurance, investments and taxes as well as constant best-selling book, the complete cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows when you get Hans book go to cardinal if you have a question, comment or suggestion for future shows. Click on the finishing well radio show on the website and send us a word. Once again, that's cardinal cardinal

Get The Truth Mobile App and Listen to your Favorite Station Anytime