Selling right away would have triggered a massive tax bill, but by holding off and using a short-term loan, they avoided paying capital gains tax.
When a parent needs assisted living, many families feel pressure to sell the home right away. It seems like the only option, especially when there are no savings to cover the care. But selling too soon can cost your family more than you realize. Today, I’ll share with you how I helped a family save $200,000 in taxes by waiting to sell their mom’s home.
The situation. A family I recently worked with was in this exact situation. Their mom was living alone and could no longer manage on her own. She needed assisted living, but she didn’t have much in the bank. Almost all of her money was tied up in her home, which she had bought for $50,000 decades ago. Today, the house is worth $950,000.
The kids didn’t have the resources to help cover her care, so they decided to sell the house. We stepped in to prepare the home for cleaning, painting, staging, and getting everything ready for the market. Then, the attorney called and informed us that the mom’s health had taken a turn, and it looked like she might not have much time. At that point, we paused everything.
How did they save $200,00 on taxes? Selling the home before her passing would have triggered a hefty capital gains tax. Because she bought the house for so little, the sale would have created hundreds of thousands of dollars in gains. The IRS would take a significant portion of that money.
“Knowing when to sell and how taxes work can protect your family’s financial future.”
But if the family waited until after her passing, they could avoid the tax altogether. This is due to a rule known as the step-up in cost basis. After a person passes, the home’s value resets to its market value at the time of death. If the house sells shortly after, there is no capital gains tax.
The family took out a short-term loan to cover the next few months of care. It cost around $15,000, but it saved them close to $200,000 in taxes. Mom passed soon after. The home was sold. The equity stayed in the family.
This is why it’s crucial to have a trusted team—a real estate agent, an estate attorney, and a CPA who can help you think through both the emotional and financial sides of a decision like this. Before selling a family home, take a moment to consider all your options. It could make a big difference in what you’re able to keep for your parents’ care and your family’s future. If you’d like to discuss a situation like this, feel free to call or text me at 626-408-2890 or email me at daveknight@kw.com. I’m here to help you explore your options to make the best decision for your property.
