Many older adults live in the home where they raised their families, with more rooms and stairs than they need. Downsizing to a smaller house, condo or apartment can make daily life easier and free up money for other needs. But it is a big financial and emotional decision, and the savings are not always as large as people expect.
Potential financial benefits
- Lower monthly costs. A smaller home usually means lower property taxes, insurance, utilities and upkeep.
- Freed-up equity. If you sell for more than you pay for your next home, the difference can add to your savings or pay off debt.
- Less maintenance. Fewer repairs and less yard work can save money and effort.
- A home that fits future needs. A single-level home with fewer stairs may let you stay independent longer.
Costs to plan for
- Selling costs. Real estate commissions, closing costs, repairs and staging can add up to a significant share of the sale price. Commissions are negotiable.
- Buying costs. Closing costs, inspections and possibly a mortgage.
- Moving costs. Movers, packing, storage and possibly new furniture.
- New fees. Condos and 55-plus communities often charge monthly homeowners association or service fees, which can rise over time.
- Price surprises. Smaller homes in desirable areas are not always cheaper, and newer homes can cost more per square foot.
Taxes on the sale
If you have owned and lived in your home as your main home for at least two of the past five years, you can generally exclude up to $250,000 of profit from your income, or up to $500,000 if you are married and file jointly. Profit above that amount may be taxed as a capital gain. Keep records of improvements you made over the years, because they can raise your cost basis and lower your taxable gain.
Some states let older homeowners transfer a property tax break to a new home. Ask your county assessor or a tax professional how the rules work where you live and where you plan to move.
Run the numbers
Make a side-by-side list of your current yearly costs and the estimated costs in the new home, including taxes, insurance, utilities, fees and maintenance. Subtract the one-time costs of selling, buying and moving. A real estate agent, a tax professional or a fee-only financial planner can help.
Think beyond money
- Location: closeness to family, friends, doctors, shopping and transportation.
- Health: steps, bathrooms and doorways that will work if your mobility changes.
- Community: many people find that a new neighborhood brings new friends, while others miss familiar faces.
- Feelings: leaving a family home can bring grief as well as relief. Give yourself time.
Alternatives to moving
If you would rather stay, home modifications can make your current home safer and easier to live in. See aging in place: home modifications worth considering. Property tax relief programs may also lower costs. See property tax relief programs.
Start sorting early
Clearing out decades of belongings takes time. Start months ahead, one room at a time. Offer family items to relatives, sell or donate what you no longer need, and keep important documents together. See organizing important papers.
