{"id":2652,"date":"2023-10-18T10:28:14","date_gmt":"2023-10-18T10:28:14","guid":{"rendered":"https:\/\/infundpros.com\/finance\/my-wife-and-i-bought-a-beautiful-lakeside-home-for-700000-its-now-worth-1-2-million-do-we-sell-now-to-avoid-capital-gains\/"},"modified":"2023-10-18T10:28:14","modified_gmt":"2023-10-18T10:28:14","slug":"my-wife-and-i-bought-a-beautiful-lakeside-home-for-700000-its-now-worth-1-2-million-do-we-sell-now-to-avoid-capital-gains","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=2652","title":{"rendered":"My wife and I bought a beautiful lakeside home for $700,000. It\u2019s now worth $1.2 million. Do we sell now to avoid capital gains?"},"content":{"rendered":"
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Dear Quentin,<\/strong><\/h2>\n

My wife and I were fortunate to retire and buy a house for about $700,000 in a growing lake community in 2012. The work-from-home boom of the past few years has increased local housing prices significantly \u2014 you can imagine how the ability to do business while sitting on your dock increases housing demand. Our house is now worth over $1.2 million, which has left us with a good problem in that my wife and I have reached the $500,000 married-couple limit for the exclusion of capital gains.\u00a0<\/p>\n

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I\u2019ve been trying to convince my wife to take the $500,000 exclusion and move so we can restart the capital-gains exclusion on a new house, but so far she is determined to stay in the current house. Our lake community is far from medical offices, and I fear that if we stay in the home and our health eventually declines, we would be forced to sell and move elsewhere, which could hit us with a big tax bill should home prices continue to go up.\u00a0<\/p>\n

Is there any advice you can give that might help us avoid or limit a future tax bill due to capital gains on the lake house?<\/p>\n

Happy to Have a Problem<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

Dear Happy,<\/strong><\/h2>\n

Yours is that age-old question: Do you choose happiness or take the money? Do you choose practicality or beauty? Or do you choose a bigger house next door? <\/p>\n

First, a recap: Existing legislation allows for single-tax filers to exclude $250,000 in capital gains, but that doubles to $500,000 for joint filers such as you and your wife. The amount, set in 1997, has not budged in 26 years. Capital-gains tax is levied at both the federal and state level. Long-term federal capital gains for a house you have owned for over a year are taxed at 0%, 15% or 20%, depending on what income-tax bracket you belong to.<\/p>\n

If you are both genuinely content living in this lake house and you believe it is, or could be, your forever home, think of it another way: You bought a $1.2 million home for $700,000. That\u2019s a win-win whatever way you look at it. Weigh up the pros and cons of staying in the home from a purely lifestyle point of view. If you genuinely believe that you should be closer to medical facilities \u2014 and I think that\u2019s an important consideration \u2014 then move. If it\u2019s not going to be your forever home, then move. If it is, make peace with that decision.<\/p>\n

From a purely financial point of view, there\u2019s an argument for selling, but you will be paying more in property tax and moving costs. What you lose in comfort, security and memories, you will save in capital-gains tax over the long run. But do you want to spend your life buying and selling homes? Are you the kind of couple who likes change and thrives on new experiences? Do you get excited by the experience of finding a new home? At what point do you decide to settle down? If you\u2019re now in your 60s, there will come a time to let go of the rat race and enjoy your downtime.\u00a0<\/p>\n

The distance you want to live from a hospital will depend on your own health and expectations for longevity, and on your comfort level. The Pew Research Center carried out a study on how far people live from a hospital: People in rural areas live an average of 17 minutes from a hospital, compared with 12 minutes for people in suburbia and just over 10 minutes for those in urban areas. \u201cThese findings come amid a wave of rural hospital closures in recent years that have raised concerns about access to health care,\u201d the report said.<\/p>\n

You can also buy yourself more time by making capital improvements. If you spend $50,000 renovating your home \u2014 adding a veranda, for instance \u2014 you can deduct that expense from the capital gains. But not all renovations and repairs are eligible. In New York, for instance, the improvements must \u201csubstantially\u201d add to the value of the property or appreciably prolong the useful life of the property, and must be \u201cpermanently affixed\u201d so the removal would cause material damage to the property itself. They must be, in essence, a \u201cpermanent installation.\u201d\u00a0<\/p>\n

Remember: If your property goes up in value to $1.5 million, you will only be paying capital gains tax on that $300,000, not including sales fees. It\u2019s free money \u2014 after taxes, anyway.<\/p>\n

Whatever you decide, don\u2019t let Uncle Sam spoil your view.\u00a0<\/p>\n

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\u00a0<\/em><\/strong>Twitter.<\/em><\/strong><\/a><\/p>\n

Check out\u00a0<\/em><\/strong>the Moneyist private Facebook<\/em><\/strong>\u00a0group, where we look for answers to life\u2019s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.<\/em><\/strong><\/p>\n

The Moneyist regrets he cannot reply to questions individually.<\/em><\/strong><\/p>\n

Previous columns by Quentin Fottrell:<\/strong><\/p>\n

\u2018I\u2019m tired of feeling like I am in hell\u2019: My boss tears into me almost daily. He says I\u2019m worthless. What can I do?<\/p>\n

\u2018I do not trust many people due to unfortunate life experiences\u2019: I\u2019m leaving all my estate to charity. Should I make a will or a trust?<\/p>\n

I earn $210,000 and I\u2019m 59. My wife and I want to move to Hawaii. Is it too late to get a mortgage?<\/p>\n<\/p><\/div>\n<\/div>\n