“We are in our late 60s and in good health, and we have a second home worth $900,000 that is fully paid for.”
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My dad recently told me he wants to marry his girlfriend soon and I am concerned he is rushing his estate planning, particularly as it relates to his children’s inheritance. My dad is 48 years old, and his wife from his second marriage passed away from cancer three years ago.
He was devastated, and I am happy he has found someone who makes him happy. His girlfriend is 49 and they have been dating for 1.5 years. I think it is wonderful they want to get married; however, I want my dad and my family to be financially prepared and protected.
My family was very tight-knit. My grandfather owned two large companies as well as significant real estate, and my parents, aunts and uncles all worked for him. We had weekly family dinners, spent the holidays together and all went on family vacations.
My grandfather and grandmother both passed away from cancer in their mid-50s. My dad and his siblings got a significant inheritance, but distributing the trust completely tore him and his siblings apart. The siblings no longer talk to each other or have any part in each other’s lives.
It was completely devastating to lose our family dynamic, and has been for years since. The last thing I ever want to happen is for something similar to happen again. When my dad told me he wanted to marry I felt like I needed to have an uncomfortable conversation about his estate.
Not an ‘early’ marriage
He is very private about his finances, so it is an uncomfortable thing to bring up. He told me he has a trust that owns everything — real estate and investment accounts — except for a few personal cars. He feels he is protected without a prenuptial agreement.
I am only 23 and would like some advice on having this conversation with my dad. When he sells the business or any of his properties, is it technically the trust selling them? If they were to ever be divorced, would she be entitled to any of it?
If he were to pass away before her, what would happen if she was not a beneficiary of the trust? What are other questions I should ask? Where is the line between wanting to be prepared, and also respecting his privacy? I want to protect my family for the future.
I do not think his girlfriend has any ill intentions. However, my siblings and I are all grown and I don’t think she should be entitled to his estate in the same way as an early marriage. I see her as my dad’s partner and I am very thankful he has that.
I do not see her and her children as deeply integrated into our family as a stepmother, and I don’t regard her children as my siblings. Thank you for any advice you have for me, and for all that I have learned reading your column.
The Daughter
Also see: My partner is against marriage. I’m not on the deed to his home, but he set up a revocable trust in case he dies first. Is this risky?
“He may regard your questions as casting a skeptical shadow over his fiancée, assuming they are in the first flush or romance.”
MarketWatch illustration
Dear Daughter,
Think very carefully before you speak. It’s a very delicate subject.
First, the good news: Your feelings about your future stepmother and her children may change, and you may welcome them into your family as warm personalities who have a lot to offer. Now, the bad news: The terms of your father’s trust and last will and testament can change too.
That’s why it’s important for you to proceed cautiously if and/or when you decide to inquire about his estate, and how he intends to structure a will or trust. He may regard your questions as casting a skeptical shadow over his fiancée, assuming they are in the first flush or romance.
It’s a sensitive and special time for your father. The nature of romance — the early days, months and even years of a relationship — often means that one often idealizes their partner, and sees them apart from the harsh realities of everyday life. It may also lead him to be overprotective.
Leave your feelings about your father’s partner and her kids out of the loop. Obviously, he loves her and it’s immaterial whether you regard this as an “early” marriage or not, and see it in a different light. At 23, 49 may seem old. But they could have four decades together.
Stick to the facts, don’t make any personal comments, and be honest about what happened to your father and his siblings. It’s not an uncommon concern; some $16 trillion will be passed from older family members to millennials and Generation X-ers over the next decade.
“Assets in a trust are not subject to equitable distribution unless they contain marital property,” says Jewell Law. “Any money paid from a trust to a beneficiary-spouse remains separate property provided it is maintained in a separate account and not commingled with marital funds.”
Prenups add protections
Remember, no one is entitled to anything. Start the conversation on the right foot by saying a prenup can help your future “stepmother” as much as it could help your father, and outline how it can act as a complement to a revocable trust, laying out other financial issues in greater detail.
Your father has already taken steps to set up a revocable trust for his children, which should protect those assets from any claims from his third wife if they divorce. Unlike a prenuptial agreement, he does not need his girlfriend’s signature to do this.
That said, I favor both a trust and a prenup. A prenup should be created before the wedding day with an attorney. It can also address issues that a trust cannot. These include documenting your premarital assets and liabilities, and how they will be divided in the event of a divorce.
Prenups are useful for alimony and child support. They can also lay out what happens to property if, say, your father dies. He could decide to give her a tenancy for life — that is, live in the house for the rest of her life. Some states even allow for “no-cheating” clauses.
He should update the beneficiaries on his 401(k) and IRA, and on other accounts he wishes to avoid probate, the public accounting of his assets and liabilities. However, some experts advise putting brokerage accounts in a trust to avoid triggering any probate threshold in your state.
It’s possible to be encouraging and pragmatic, assertive and sensitive, practical and helpful. Your father has been through a lot, and you are also getting used to having these new people in your family, but ultimately it’s your father’s life, so know when to give your dad his space.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
Previous columns by Quentin Fottrell:
My wife and I sold our home to her son at a $100,000 discount. He’s now selling at a $250,000 profit. Do I ask for a cut?
My employer hires exclusively white managers and promotes people of ‘questionable expertise.’ Is this a good or bad time to jump ship?
Dear MarketWatch,
I am a 59-year-old retired union construction worker collecting a full pension of $80,000 a year with no COLA. I am also collecting Social Security Disability for $3,400 a month. My wife, who is 59, is an executive assistant to a chief operating officer of a major hospital, and her income is $68,000. My wife has $425,000 in a 401(k).
We owe about $180,000 at 2.5% on our home, but we make bi-weekly payments and it should be paid off in about 8.5 years. My wife plans on taking her Social Security at age 62. We also have $100,000 in an annuity. Do we have enough income to live a comfortable lifestyle? Maybe one or two trips a year?
See: I’m 71 and can’t decide if I should pay off my mortgage or get a joint annuity that’s cheaper — what should I do?
Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com
Dear Reader,
Only you and your wife could really decide if you have enough income to live a comfortable lifestyle. It sounds like you’re in a good spot, but there are a few exercises you can do to help you both find the answer.
First, add up all of the sources of income you have now, and what you anticipate in the foreseeable future. You can count on your pension, Social Security Disability and her income. How will that fluctuate over time? For example, when SSDI stops, when do you get your Social Security retirement benefit instead? When will your wife tap into her retirement account, or when will her annuity begin?
Then calculate your expenses. Get extremely granular. Start with the necessities: your mortgage, taxes, utilities, home maintenance and upkeep, healthcare (doctor visits and medications) and groceries. Now add in the extras — dinners out, those vacations you’d like to take, any extra entertainment and, of course, money set aside for emergencies.
A note about emergencies: An emergency savings account should have a year’s worth of expenses (if not more) to be on the safe side. That money should be in liquid assets, and easily reachable. It should not be touched for anything but emergencies. And if you have extra income in retirement, it doesn’t hurt to throw more money into your savings — for the short and long term. You never know when it could come in handy.
Now, review your assets. Check your wife’s 401(k) plan and how it is invested, to make sure that it is allocated appropriately. For example, you don’t want it to be too aggressive, but at your age, it helps to have some risk so it can continue to grow. A trustworthy and qualified financial planner could help you get specific on your asset allocation. Look at your annuity, and understand the terms and stipulations, including when it starts, what to expect from it, and if there are any tax consequences.
Also see: My husband says we’ll be ‘homeless’ if we keep renting. We’re 68 and 74 — do we buy a home instead?
Set up accounts on the Social Security Administration’s website, if you haven’t already, so you know what to expect from your benefits and to confirm all the information the agency has for you and your wife is correct. That site can also help you estimate how much you could expect from her benefits at age 62, versus her full retirement age, or later, so that you can make informed decisions about claiming. You might decide that she can wait to claim at her full retirement age, or even postpone it until age 70, so that her benefits can grow.
Finally, any and all of these factors could change. It is important to have back-up plans, so that in case of a serious event, you don’t feel lost or panicked. When you’re poring over the numbers, talk to your wife about what could change, and what you would do in that instance, such as if you decided to move, one of you got sick, the roof needed to be replaced or one of your income sources disappeared. It’s always best to be prepared.
Readers: Do you have suggestions for this reader? Add them in the comments below.
Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com
Dear Quentin,
I have been with my wife since 1993. We lived together for a few years and, in 2004, we finally married. We are both in our 60s. When my wife retired, her company offered a one-time payout of approximately $1 million, which our financial adviser put in her name in IRAs. We are relatively wealthy: we have cash savings of $300,000 and other investments of $3.2 million, which include that $1 million payout. The rest of our wealth is made up by a mix of joint funds (held in stocks etc.)…
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Dear MarketWatch,
We maintain several escrow accounts for unusual purchases and annual bills, such as insurance and taxes. Our home and car are paid in full.
My wife has a 401(k) account with about $110,000. She also has an annuity, which will pay out approximately $3,400 a month in three years. We have about $200,000 in a money-market account.
I would like to put $100,000 in some dividend-paying stocks, reinvest the dividends for about five years, and then start taking the dividends. The problem is my wife doesn’t want to invest in any stocks.
What would be the best way to convince her to invest?
Thanks for any help.
See: I’m 92 and will probably live to be 100. I have about $250,000. Thoughts?
Dear Reader,
Many couples disagree when it comes to investing — especially retirement savings they plan to rely on in their old age. I would suggest first you focus less on convincing her, and more on understanding why she’s so hesitant.
Money is a tough topic to discuss and can lead to emotionally charged conversations. Everyone approaches money differently. If they watched their parents or grandparents struggle to pay for everyday expenses, that would obviously have an impact on them. Other people may have seen their loved ones lose money in the stock market, so now they’re afraid to try it themselves. (Great Recession, anyone?)
Sit down with her and find out what’s going on — calmly and respectfully. State the reasons why you think this is a good strategy, but first listen to what she has to say, and try to see her perspective.
There is one critical component missing from your letter: Does $100,000 represent all of your savings? 50%? 5%? If you are investing money in the stock market, you should avoid investing in individual stocks at all costs. Firstly, you are essentially gambling with your money. Secondly, the stock market, as the last couple of years have shown, can be very unpredictable. It’s a long-term investment. If this $100,000 represents a large portion of your net worth, you must proceed with caution.
“ There is one critical component missing from your letter: Does $100,000 represent all of your savings, 50% or 5%? ”
Also, what about a compromise? If she thinks $100,000 is too much for this route, would she feel comfortable starting with $10,000 or $20,000, and gradually upping the allocation to stocks over time?
Understanding your risk tolerance (how much risk in a portfolio you can stomach) is key. Talking about that, as well as what plans you have in place to protect your assets for the long haul, will be crucial.
A financial adviser can help you both figure out your risk-tolerance levels, as well as provide stress tests on a portfolio to see how it may respond to various levels of risk, according to TD Ameritrade. You’d see if you’re really comfortable exposing your portfolio to risk, and she can see how your assets would survive the stock-market rollercoaster.
If you can’t reach an agreement, err on the side of caution. “If you’re the more aggressive partner and you chafe at this idea, consider how you’d feel explaining to your spouse or significant other the consequences of a major drop in your investment portfolio when a bear market roars through,” TD Ameritrade wrote.
Talking to your wife and a financial adviser about investment risks is healthy. You don’t mention your age, but many older investors think they need to pare down their portfolios’ risk levels as they age, and that’s not exactly true. You obviously don’t want to lose your nest egg, but a little exposure to risk (if done right) could provide growth.
Finally, where is your common ground? What are your dreams? Have you put money aside for vacations now or in retirement? Do you have an emergency fund? What is the end goal? This conversation about the $100,000 could lead to a bigger, more meaningful conversation.
You have accomplished so much already, and you likely did that by working as a team. You have paid off your home and car, and you have a money-market account and 401(k) plan. The best course of action is the one you find together.
Readers: Do you have suggestions for this reader? Add them in the comments below.
Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com
My Wife and I Have $1 Million in a 401(k) and Fully Own a $500k Home. Can I Retire in 5 Years at 60?
With $1 million in a 401(k) and no mortgage on a $500,000 home, retirement at 60 may, in fact, be possible. However, retiring before eligibility for Social Security and Medicare mean relying more on savings. So deciding to retire at 60 calls for careful planning around healthcare, taxes and more. At any age, deciding whether you can retire comes down to weighing your assets against your expenses.
Do you have questions about retirement planning? Speak with a financial advisor today.
Retirement Decision Basics
The first step in deciding if you can retire at 60 is understanding your financial situation. Important factors include your assets like retirement accounts, other savings and home equity. Your expenses also matter, from basics like housing and food to discretionary costs for travel. Comparing your income sources to your costs reveals whether you need to adjust your savings rate or can retire comfortably.
It’s also key to understand how retirement age affects your future income and expenses. For instance, you aren’t eligible for Social Security until age 62. Also, while you can technically claim benefits at 62, waiting until your full retirement age of 67 or even until 70, boosts your monthly benefit significantly.
Retirement age also can greatly affect healthcare costs. That’s because retiring before 65 means paying for five years of private health insurance until Medicare eligibility.
Retiring by 60
American workers typically retire around ages 64-67. Retiring early at 60 requires diligent preparation, but isn’t impossible. First, understand the rules around retirement accounts.
With a 401(k), you can take penalty-free withdrawals starting at age 55 if you leave your employer. However, you’ll still owe income tax on withdrawals. It’s wise to delay drawing down retirement savings as long as possible, so your investments keep growing.
Second, realize you’ll need to self-fund healthcare until Medicare at 65. In turn, you’ll need to budget for five years of individual coverage or COBRA. If you have health issues, delaying retirement to keep work-based insurance may be safest.
Third, while you can claim Social Security at 62, your benefit will be permanently reduced versus waiting. If you delay until your full retirement age, your check will be approximately 30% higher. Waiting until 70 maximizes it even further to 132%. If you can afford to wait, many experts recommend doing so.
If you have a mortgage, consider paying it off before retiring at 60. If you’ve paid off your home, that’s one less expense to worry about after you’re living on a fixed income, notes Alec F. Root, CFA and research analyst at DBR & CO.
“Generally speaking, it is not imperative to pay off your mortgage in full before retirement, but it does make a difference,” Root said to SmartAsset. “The primary reason is that if you own your home outright, then you are eliminating an annual expense of $30,000 to 40,000 or more during retirement. Without this expense, there is less need to draw from your assets and/or income sources, which helps preserve your assets over the duration of your retirement.”
Retiring at 60 in Action
A hypothetical example can show how all this might work. Consider a married couple, both 55 years old, with $1 million in 401(k) accounts and a paid-off $500,000 home. They make $150,000 a year combined and spend $80,000 annually. They have 10 years until age 65 and Medicare eligibility, but would like to retire by age 60.
Using the 4% withdrawal rule, a common guideline, their $1 million 401(k) could safely provide $40,000 income annually before taxes. They could cover the resulting $40,000 shortfall by increasing their withdrawal rate to 8%. This would, however, increase the chances they’d run out of money in retirement.
Two years after retirement, at age 62, they could claim Social Security benefits. Assuming they each received the average benefit of about $1,800 monthly, their combined Social Security benefit would be $43,200. They could then reduce their 401(k) withdrawal to the 4% safe rate or slightly below.
They’d need to budget carefully for healthcare, likely buying an individual policy costing $1,000 per month for them both until Medicare eligibility at 65. Taxes will also take part of their income from withdrawals and Social Security, but early retirement appears feasible with their assets. They could also trim spending or earn income from part-time work.
Making the Call
Every individual retirement plan is different. Strategies for deciding if you can plan to retire early include:
No matter how well laid out your early retirement plan is, risks remain. For instance, retirement costs may exceed projections due to inflation or healthcare needs. Another possibility is that an extended period of underperformance could jeopardize portfolio sustainability. Surprise costs, such as unexpected home repairs, can strain budgets, Root notes.
“Some of the major costs to budget for after paying off a home include general maintenance and repairs, larger projects such as a new roof or new floors, or a bathroom or kitchen renovation, and property taxes,” he said.
Bottom Line
While retiring at 60 takes diligent preparation, for some it can become reality. The key is understanding your income sources, estimating expenses accurately and planning for risks like healthcare costs pre-Medicare. Paying off your home before retirement also helps.
Retirement Planning Tips
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A financial advisor can help you build a retirement plan for the future. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Photo credit: ©iStock.com/jacoblund, ©iStock.com/zamrznutitonovi
The post My Wife and I Have $1 Million in a 401(k) and Fully Own a $500k Home. Can I Retire in 5 Years at 60? appeared first on SmartReads by SmartAsset.
Dear Quentin,
I am a 49-year-old married man. My wife and I have no children, live in Maryland and have $75,000 in liquid savings. I’m thinking of putting $50,000 into a one-year CD at 4.5%, but my wife keeps telling me to wait and see how my job goes. We have $90,000 in a 403(b) retirement plan, $280,000 in our portfolio (80/20 stocks/bonds), $18,000 in a traditional IRA and $10,000 in an emergency fund. We own three vehicles, which are all paid off.
I…
My wife and I are elderly. I have an individual retirement account (IRA) worth about $100,000, and we have a trust set up through our children to protect our assets. If one or both of us have to go into a nursing home, can they take our IRA? What do we need to do to protect it?
-Dawn
Long-term care (LTC), which may include nursing home stays, is expensive and can quickly suck up savings you may have intended for something else.
How do you prevent that from happening? The specific answer depends on variables you didn’t reveal. But in my experience, when people talk about “protecting” assets from LTC costs, they often have Medicaid in mind. So what does that look like? (And if you need more help planning for long-term care costs, consider working with a financial advisor).
Qualifying for Long-Term Care Through Medicaid
Medicaid is often viewed as a “safer” option for long-term care for the simple reason that it is less expensive and therefore less likely to drain your assets. But Medicaid eligibility is governed by strict income and asset limits. While those limits vary by state, having a $100,000 IRA will likely disqualify you from Medicaid coverage.
So now you are faced with a paradox: The assets you want to save by means of cheap healthcare are an obstacle to getting cheap care in the first place.
It is at this point that an estate attorney or well-meaning friend might suggest you rearrange your assets in such a way as to exempt them from the eligibility limits. The idea is to make yourself less wealthy on paper to qualify for Medicaid without actually giving away your assets.
If this sounds tricky, that’s because it often is. For one thing, many states use a five-year lookback period when determining Medicaid eligibility. This means that if you do any fancy asset-shuffling in the five years before applying, your efforts will have been in vain. (And if you need help determining whether you’re eligible for Medicaid, consider matching with a financial advisor.)
3 Ways to Protect Your Assets from Medicaid
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
If you’re willing to plan ahead and do your homework, there are a few options for relocating your assets so that you can potentially qualify for Medicaid.
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Annuities: Any money you put into a “Medicaid-compliant” annuity will not count against your asset limit and will be exempt from the lookback period, as well. The catch – and it’s a big one – is that the money is totally locked up, except for whatever periodic payment you receive from the annuity. And that payment will count against the income eligibility limit.
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Home equity: In most cases, any equity you have in your primary residence will not count against the Medicaid asset limit. So you could protect your assets by putting them toward your mortgage or even upgrading your home. But the lookback period also applies here, and in some states, the government may claim part of your home equity to recoup care costs after your death.
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Trusts: You mentioned having a trust already set up, but there is a type of trust designed specifically for this situation. Putting your money into a Medicaid asset protection trust (MAPT) effectively hands it over to someone else, so it is technically no longer yours and does not count against your Medicaid eligibility. Just remember that the handoff must be completed five years before you go on Medicaid.
As you may notice, the common problem with these methods is that they drastically restrict what you can do with your assets. And by taking away your financial independence, to some extent they leave you poor in reality – not just on paper. (And if you need help executing one of these strategies, consider matching with a financial advisor.)
That may be preferable to the alternatives, but it depends on another variable: Why do you want to protect your assets from long-term care expenses, including nursing home costs, in the first place?
Is Cheap Care Worth it?
The options discussed above often make the most sense as estate planning measures. If you do not expect to use your assets yourself and are instead concerned about preserving them for your heirs, perhaps it does not matter if they get locked up in a trust, an annuity or your home equity.
But there is still an elephant in the room. Remember that these asset-protection techniques will ultimately leave you with cheap healthcare and long-term care. And that may impact your access to care and its overall quality.
Ask yourself this: What are you trying to “protect” your money for? Is it worth all the hoop-jumping and the risk of mediocre care in your twilight years? It may be if you want to leave a sizable inheritance behind or save assets for your spouse. (And if you need more help with estate planning, consider working with a financial advisor.)
Next Steps
A middle-ground solution be the best course of action. Something like LTC insurance or an “aging-in-place” strategy may not completely protect your assets from long-term care costs. But such an option could reduce those costs while still providing the care that preserves your quality of life.
Remember, the point of saving money is ultimately for your well-being and that of your loved ones – not just to save it for its own sake.
Tips for Finding a Financial Advisor
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Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Graham Miller, CFP® is a SmartAsset financial planning columnist and answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Graham is not a participant in the SmartAdvisor Match platform. Find more money insights from Graham at the Wiegand Financial blog.
Photo credit: ©iStock.com/shapecharge, ©iStock.com/Ridofranz
The post Ask an Advisor: Can a Nursing Home ‘Take Our IRA?’ My Wife and I Are Elderly. We Have a $100K IRA and a Trust to Protect Our Assets. appeared first on SmartAsset Blog.
Dear MarketWatch,
Before I married my wife, she took out a mortgage on a home in El Paso, Texas so she and her mom could live in it.
After we married, my mother-in-law stayed at the property and made the mortgage payments. She’s not in good health and my wife wants to sell the property. We never profited from the property as I considered it her mom’s home.
The home was purchased for $75,000 in 2005, but it was never kept up and it’s been neglected. I’m even afraid to walk in and see the mess. It’s in the process of being vacated and cleaned. A local realtor said they can probably sell it for $160,000.
The home is in my wife’s name. The home is not listed in a trust.
Will we be responsible for capital-gains tax? If so, what options do we have to avoid it? Thanks for your insight.
Taxes in Texas
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear Taxes,
You have multiple options to explore, assuming you have come to an arrangement with your mother-in-law and her long-term care after she moves out. If the house does sell for as much as the real-estate agent says, you’re looking at a gain of $85,000.
If you want to avoid capital-gains tax on the sale of your mother-in-law’s home, the first and most straightforward option: You bite the bullet and live in the home, and not pay the tax man a single cent.
I know it may be an annoyance, but if you live in the house for at least two years, your gains won’t be taxed under existing rules. The Internal Revenue Service says that if you’re married and file taxes jointly, you can exclude up to $500,000 of capital gains on real estate.
According to the MarketWatch Tax Guy column: “To qualify for the larger $500,000 joint-filer gain exclusion, at least one spouse must pass the ownership test and both spouses must pass the use test. When only one spouse passes both tests, the maximum gain exclusion is only $250,000. However, if you and your spouse own two houses, you can each potentially separate $250,000 exclusions.”
Not interested in moving in? You can also consider renovating the property and renting it out. Calculate the projected rental income and see if it covers all the expenses you take on to renovate the home, and also see if it adds some additional income to the family.
“It may be worth a discussion to better understand the economics of renting the home,” Matt Sotir, a financial professional with Equitable Advisors, told MarketWatch.
Not interested in renting either? Then you can also consider a 1031 exchange, if it was treated as an investment property and it qualifies. Talk to your real-estate agent and see if this applies, and if it does, you can exchange the property under the 1031 rules, Sotir said. In other words, you can sell the property and use the money to purchase a “like kind” property, he said. And “given the amount of the gain, it may be a complex way to avoid a modest tax,” he added.
But if you just want to get rid of the home as soon as possible, you can likely lower your tax bill simply by including the costs you bore to fix it up. Keep track of all the money you’re spending on the home, if you’re choosing to clean up, repair and/or remodel it.
You can list those costs when you file your taxes, and that may cut (but not defer or completely eliminate) your overall capital-gains tax, because you can subtract these costs from your sales price. Consult a real-estate agent on whether this route makes sense for you.
But a word of caution. Don’t be obsessed with trying to avoid paying the tax man, and then holding onto the home for longer than you want.
“Sometimes, after exploring all options to reduce these taxes, some tax will have to be paid,” Sotir said. “If the house needs to be sold, try to limit the tax liability to the maximum extent possible.”
But he agrees that you should sell the house, if that’s what you all want, “and don’t let the fear of a modest tax stop you.”
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