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Many seniors share a common profile when it to comes to their personal residences. If they own a home, typically they’ve lived in it for 30 years or more, and have paid off the mortgage. The inclination of most people is simply to stay put in familiar surroundings. Yet for several good reasons, this option is not always to an elderly couple’s or an individual’s best advantage.

To begin with, maintaining a house is costly, time-consuming, and labor intensive, especially for an elderly person. After the children have moved out, the house may be much larger than needed, and stairs may start to be difficult to navigate. Repairs are often deferred, and the house becomes run down. It is expensive to heat in winter, and expensive to cool in summer.

Many people recognize that a smaller condo unit, rental apartment, or assisted living facility might be a more sensible choice for senior living, but the familiarity of the home surroundings, and the seemingly complicated logistics of making a change, seem to impede any action. For those who feel overwhelmed by all that’s involved in downsizing the home, it might be useful to consult one of the firms that specialize in helping seniors make the move, such as www.caringtransitions.com, www.movingmentor.com, or www.papermoonmoves.com.

Also, many people are concerned about the financial consequences of making a move, and fear paying a lot of taxes when they sell their home. In fact, the taxes in many cases are quite modest, or even non-existent. When many seniors are finally able to realize the appreciation in value of their home that has accrued over a long period of time, they often find themselves in a far better position than they ever imagined.

Let’s work through a typical scenario, and see how it plays out. Suppose that Mom and Dad bought a house in 1950 for $50,000, and they’re both are on the deed. They paid off the mortgage years ago. The house is now worth $500,000. Dad recently passed on, and Mom has remained in the house by herself. The children are married and have their own families. Mom is finding the house a lot to manage, and doesn’t need all that space anymore.

A while ago, Mom visited a friend in a senior residence, and really enjoyed the facilities and the possibilities for friendship and companionship. She wished she could afford to live there. In fact, she can, if she could just bring herself to sell the house.

Here is a brief analysis: Because Dad has passed on, half of Mom and Dad’s tax basis in the house “steps up” to current fair market value, i.e., $250,000 in our scenario. What this means is that, if the house were sold, the capital gain would be measured by the difference between the sale price ($500,000) and the “stepped up” basis ($250,000) rather than the original cost basis ($50,000). Thus, the capital gain is only $250,000, rather $450,000.

However, the capital gain is not taxable in our scenario, because Mom is selling her primary residence and is therefore entitled to a $250,000 exclusion from the amount subject to capital gains tax. As a result, Mom can sell the house free of any tax, and receive the entire $500,000 proceeds of sale. With this amount, she can easily afford to live in an apartment or a senior residence for a long time.

In addition, should Mom need long-term care, either now or later, a New York Elder Law attorney can assist her with structuring a plan that would allow her to have a home aide paid for by Medicaid, while protecting her money, investments, and property. With proper planning, the Medicaid laws will permit Mom to maintain the level of care and quality of life that she would want to have.

You can learn more about Elder Law strategies and methods in Lamson & Cutner’s newly updated Special Report, 25 Strategies to Prevent Financial Ruin from Long-term Health Care Costs. It entirely FREE. Just click to download your copy. In addition, by contacting Lamson & Cutner, you can put your name on the list to receive an advance copy of the firm’s soon-to-be-published Special Report, The Elder Law Crash Course.

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