Home Downsizing Series - Article 1 of 6 

This article kicks off a six-part series on the key considerations when downsizing your home in Massachusetts. Each article is intended to provide information that is practical, local and without the jargon. There are lots of reasons to downsize your home, ranging from financial to a change in lifestyle.  Articles will cover the gamut.  Let’s start with the tax and money moves that help you keep more of your home sale proceeds.

Selling a longtime home could open doors both emotionally and financially. Before you list your home, define your “why”.  Then meet with your financial planner and real estate agent to build a strategy. A little clarity up front will go a long way.

Here’s the big topic most people ask about: the federal capital gains tax exclusion. If the property you are selling has been your primary residence for at least two of the last five years, you may be able to exclude up to $250,000 of gain if filing single or $500,000 if married filing jointly. For many households, this tax-exemption is what makes downsizing math work.

Next, don’t forget the state layer. In Massachusetts, most long-term capital gains are taxed at 5%, while short-term gains (property held one year or less) are 8.5% under recent tax rules. Your real estate agent can estimate a home sale range and likely net proceeds.  Your CPA can then turn that into a precise tax picture for your situation.

Now, the fun stuff…PAPERWORK. This matters more than people think. Improvements such as a new roof, windows or any remodeling can increase your home’s cost basis and reduce taxable gain. So, please keep proof of those upgrades and hang on to all records and receipts. That information may be worth thousands of dollars!

A quick myth-buster: 1031 exchanges are terrific for investment or business property, but they do not apply to a primary residence. If you’re selling rental or investment property, that is a different conversation to have with your CPA.  In this article, the focus is on downsizing your primary residence where a 1031 exchange does not apply.

Finally, it is important to compare the carrying costs of your current home to the next home’s all-in number.  This should include taxes, insurance, utilities, and any condo or HOA dues. Many sellers find that even after moving costs, the right-sized home can free up time and cash for what’s next.  If this is your goal, make sure you fully understand the expenses of your anticipated new-home and determine your buying power when looking for your next home.

This is the first of six installments in the Downsizing Series. Next topic: decluttering with less stress and more momentum. 

This is intended as general information, not tax advice. Ted Raad is a Residential Advisor with Advisors Living, he is not a tax expert nor a financial planner. Please confirm details with your CPA or financial planner. 

Ted Raad, Residential Advisor 

Advisors Living Real Estate -
Ted Raad Homes 

Cell: 508-290-4120

[email protected]

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