Many people consider downsizing their home as they approach retirement both for funding retirement and in decreasing home maintenance. Investopedia.com recently shared an article on this topic and detailed the mistakes to avoid in such an approach. Below are some of the highlights so you can learn from others’ mistakes.
Don’t Overestimate Your Current Home’s Value
Too many people will overestimate how much their current home is worth simply based on what friends and neighbors say they received for the sale of their homes. It’s important to get a realistic sense of your home’s value by working with professionals. Visit websites like Zillow.com and Realtor.com to learn the prices of recently sold properties in your area. Using online “estimators” from banks will also provide useful information. Keep in mind that prices and estimates shown on these and other sites may not take into account the specific features sought by prospective buyers and by consulting with local real estate agents or independent appraisers you can address this problem. Don’t be afraid to use your resources to get advice. Ask these real estate professionals about tips and tricks for ways to inexpensively spruce up your home’s curb appeal and increase the value. Most experts will agree that the cost of large-scale renovations may not be recouped unless your home is in extremely poor condition.
Don’t Underestimate the Cost of Your New Home
Remember, you can use the online tools and real estate professionals mentioned above to get a sense of what you’ll have to pay for the type of home you want to buy. If you are planning to move to a new area, make sure you do your research and spend a significant amount of time there to ensure it’s a good fit for you and your loved ones. By spending time there, you can get a feel for what it’s like to actually live in the area. Consider renting a property for a year or so before buying as a way to try it out – it may be the wisest approach.
Don’t Ignore the Tax Implications of Your Move
Currently, most couples are able to exclude up to $500,000 in gains from the sale of their home, while singles can usually exclude up to $250,000. Depending on which tax bracket you fall into and the length of time you’ve lived in your current home could impact whether taxes will be due upon its sale. You can find detailed information about this issue in IRS Publication 523.
Don’t forget to consider factors beyond income taxes on your home’s sale, particularly if you are moving to a different state. Remember that lower property taxes in your desired destination could be offset by higher sales and income taxes. Likewise, pensions and withdrawals from retirement accounts could be taxed at a higher rate than where you live now, by doing your research now you can save time and money in the long run. Start with your state’s revenue or tax department website as it is often a good source for this important information.
Don’t Ignore Closing Costs
Closing costs can be easy to forget about if you haven’t bought or sold a home in quite a while. This can include title insurance, recording fees, legal fees… the list of miscellaneous charges can seem endless. Additionally, if you use a real estate agent, commissions can be as high as 6% according to sites like Realtor.com. Lastly, don’t forget about moving costs, like truck rentals, movers, and shipping fees.
At the end of the day, the important thing to remember is, do your research and run the numbers carefully before downsizing. While you may find ways to save a significant amount of money on your move, you may also realize that you should stay where you are for now. Either way, you will have peace of mind knowing you made the right decision once you did your research, and that alone will be worth the effort.
If you have questions along the way regarding your financial situation, consider scheduling a consultation with our offices. Do not hesitate to reach out to the Deliberato Law Center either by calling our office at (216) 341-3413 or writing us using the contact form on our website.
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