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What are the financial considerations when downsizing?

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You can exclude up to $250,000 of capital gains from your taxable income when you sell your primary residence—$500,000 for married couples.

Do you have to pay capital gains when downsizing?

Before selling your home, consider how taxes could come into play.

Under current law, you can exclude up to $250,000 of capital gains from your taxable income when you sell your primary residence.4 Married couples can exclude up to $500,000.

To qualify for the maximum exclusion, you must have owned and used the house as your primary residence for at least two out of the last five years.

There are a few exceptions to this rule. For example, if you move before meeting the ownership and primary use tests due to health reasons, a natural disaster, or other unforeseeable events, the IRS may allow you to take a partial exclusion.5

To calculate the potential gain, subtract your cost basis from the selling price. Your cost basis6 includes:

  • The price you paid for the home.
  • The cost of any significant property improvements.
  • Any costs of selling the home.

For example, say you purchased your home for $300,000 and spent another $150,000 on renovations. You sell the home for $700,000, paying $30,000 in closing costs.

In that case, your basis would be $480,000 ($300,000 + $150,000 + $30,000). That makes your gain from the sale $220,000 ($700,000 - $480,000). Assuming you met both the ownership and primary use tests, you wouldn't have to pay any taxes on the sale since your gain is below the $250,000 exclusion limit.

Just thinking about moving can be daunting, talk to your Synovus financial advisor if you're wondering whether downsizing is right for you. We here to help you think through the details.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

Diversification does not ensure against loss.

  1. S&P Global, “S&P CoreLogic Case-Shiller Index Reports 18.8% Annual Home Price Gain for Calendar 2021," published February 22, 2022, accessed May 6, 2022. Back
  2. Kathy Orton, “Experts predict what the 2022 housing market will bring," Washington Post, published January 10, 2022, accessed May 6, 2022. Back
  3. Knock, “How to buy a house before selling your current home," published February 25, 2022, accessed May 6, 2022. Back
  4. IRS.gov, “Topic No. 701 Sale of Your Home," updated January 24, 2022, accessed May 6, 2022. Back
  5. IRS.gov, “Publication 523: Selling Your Home," 2021, accessed May 6, 2022. Back
  6. IRS.gov, “Property (Basis, Sale of Home, etc.)," updated November 4, 2021, accessed May 6, 2022. Back