Taxes are often one of the biggest unknowns for adult children helping parents sell a home. Understanding the basics can relieve anxiety and prevent costly surprises.
Capital gains tax is the most common concern.
When a home sells for more than its original purchase price, the profit may be subject to capital gains tax. However, many seniors qualify for a significant exclusion.
Most homeowners receive a generous exemption.
If your parents have lived in the home as their primary residence for at least two of the past five years, they may exclude up to $250,000 in gains if single or $500,000 if married, depending on their filing status. For many long-time homeowners, this eliminates capital gains taxes entirely.
Inheritance and estate planning matter.
Selling during a parents lifetime versus passing the home through inheritance can have different tax implications. Inherited homes often receive a “step-up” in basis, which can reduce taxes for heirs, but this depends on individual circumstances.
State taxes may also apply.
Some states have additional rules that affect proceeds from a sale, making local expertise important.
Always consult a professional.
While a real estate advisor can explain general considerations, a CPA or estate planning attorney should review specifics before decisions are made.
Understanding the tax landscape empowers families to make confident, informed choices, without unnecessary stress.
Thinking about downsizing? Make informed decisions with our complete Downsizing Guide, packed with practical advice, checklists, and expert insights.