Transcripts

"Money File"-Your House May Not Shelter You From Capital Gains

SUSIE GHARIB: In tonight`s "Money File," thinking of your home as a retirement fund? Think again. Here`s Terry Savage, author of "The Savage Truth on Money."

TERRY SAVAGE, AUTHOR, "THE SAVAGE TRUTH ON MONEY": If you`re like many Americans, your house is your largest single asset. And it has been appreciating at a rate that probably outstrips your investment portfolio. In fact, your home might represent a good portion of your retirement fund. And you`re living in it. But can you afford to sell and then retire? Ever since the tax law changed in 1997, there are some potentially expensive tax consequences to selling your home. You can no longer roll the gains from selling a house and moving into another. Under the old laws after age 55, each person had a once-in-a- lifetime exclusion of $125,000 from capital gains taxes. But under the new rules, every time you sell a house you could owe taxes. Single filers can exclude $250,000 of gains at every sale. And married, filing jointly, get a $500,000 exclusion. You can take that deal every two years. But what about those who stayed put for many years and watched their homes soar in value? Even a million-dollar profit dwindles when a single can only exclude $250,000 of gain. And depending on where you live, you might also owe state and local taxes. Maybe you can`t afford to move until you die when your heirs can inherit the family home at the stepped up value on the date of your death. But then don`t die in 2010, when even that tax break expires. Thinking of your home as a retirement fund? In fact, a reverse mortgage with its monthly withdrawals of equity might be the only answer to turning your house into your pension. I`m Terry Savage.