{"id":635,"date":"2017-07-29T12:16:07","date_gmt":"2017-07-29T17:16:07","guid":{"rendered":"https:\/\/pbaf.org\/?p=635"},"modified":"2018-10-11T09:44:34","modified_gmt":"2018-10-11T14:44:34","slug":"the-upside-of-downsizing","status":"publish","type":"post","link":"https:\/\/pbaf.org\/the-upside-of-downsizing\/","title":{"rendered":"The Upside of Downsizing"},"content":{"rendered":"

\"bungalow\"<\/a>One of the great things about Permian Basin Area Foundation is its ability to accept non-cash, non-traditional gifts like real estate. The majority of us\u00a0own at least one home and as our population continues to age, there is often a need to downsize and simplify.<\/p>\n

That process is frequently\u00a0complicated and, due to increased home value over time, can result in a sale that creates a tax burden. No one enjoys\u00a0paying more than\u00a0necessary in taxes. Fortunately, there are ways to decrease or even eliminate tax while doing something great for the community.<\/p>\n

Consider the story of Dora and Henry. The two were married for 61 years when Henry passed away leaving Dora with two children who are in their 50’s.<\/p>\n

After moving to Texas in 1960, the couple bought a four-bedroom home in a cute neighborhood. There was room for the kids and even a home office. Twenty\u00a0years later, both\u00a0children moved out and were raising families of their own.<\/p>\n

Dora and Henry purchased their home for $150,000. Because it is in a prime location, the home appreciated to $750,000 over the years. Dora felt that it was time to consider the possibility of selling the home and moving into condo in a senior community so she sat down with her CPA, David.<\/p>\n

Dora:<\/strong> “David, there was a time when Henry and I needed all the space of a four bedroom home when we were raising two children. But I don’t need that much house anymore with them gone and it’s become a financial burden to maintain. I’d feel safer and happier in a nice small home near all my friends. I’ve been doing a little research and think I may have found something for around $300,000 that would be perfect for me.”<\/p>\n

David:<\/strong> “That’s probably a very wise consideration, Dora. At some point, it makes sense for most of us to downsize. Your initial purchase price of $150,000 and an increase in basis when Henry passed away leaves you with a basis of around $400,000 in your home. If you sold it for $750,000, the gain would be $350,000. You have a $250,000 exclusion on the sale of your principal residence but the last $100,000 would be taxable.”<\/p>\n

Dora:<\/strong>\u00a0“Well, I don’t think I want to pay tax on that much money. What if I made a gift to the community foundation that Henry and I supported for so long? We always considered starting an endowment but wondered if we would have enough money\u00a0to fund it. Perhaps I could name it in his honor and designate the proceeds to his favorite charities…”<\/p>\n

David:<\/strong> “That would work well and I’m sure Henry would appreciate it. If you sold your home for $750,000, that would buy you a condo\u00a0in the area you love. With your $250,000 exclusion, the taxable gain on your home sale would be $100,000 but if you deeded that part to the foundation just before the sale, you will bypass tax on that $100,000 and have a charitable deduction. You’ll end up with no tax on the transfer and about $600,000 cash. After you purchase your new home, you’ll still have $300,000 to invest any way you like.”<\/p>\n

Dora:<\/strong> “That sounds like it will work perfectly for me. Let’s give Guy, at the Foundation, and Bob, my attorney, a call and see if we can get the gift set up. Then all that’s left to do is list the home and find a buyer. I’m looking forward to settling into the retirement community so I can be closer to my friends!”<\/p>\n","protected":false},"excerpt":{"rendered":"

One of the great things about Permian Basin Area Foundation is its ability to accept non-cash, non-traditional gifts like real […]<\/p>\n","protected":false},"author":1,"featured_media":776,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[46],"tags":[],"_links":{"self":[{"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/posts\/635"}],"collection":[{"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/comments?post=635"}],"version-history":[{"count":0,"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/posts\/635\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/media\/776"}],"wp:attachment":[{"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/media?parent=635"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/categories?post=635"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pbaf.org\/wp-json\/wp\/v2\/tags?post=635"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}