Strategy 61 of 107
Merge households: a parent sells, moves in and shares the costs
What it is
If a parent wants to live with family, they can sell their home and may exclude up to $250,000 of gain ($500,000 married) from tax.
Steps
- If a parent wants to live with family, they can sell their home and may exclude up to $250,000 of gain ($500,000 married) from tax.
- Write down what they pay each month toward the household, or what they lend at the IRS minimum rate.
- Their monthly share goes to principal.
Repeat: Monthly.
Measure: Monthly share received.
Try it in the calculator Enter its amount in "Monthly non-income amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- Living together is a big change for everyone.
- A gift from a parent can count against Medicaid eligibility for five years; get elder-law advice.
- Put the arrangement in writing so siblings understand it.
Who it fits
Married couples, Newlyweds, Single, Average household, No high school diploma, No college degree
Needs
Family willing and able to help
How predictable
Depends on people or program rules (tenants, family, IRS records, lenders)
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (married couples). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: if a parent wants to live with family, they can sell their home and may exclude up to $250,000 of gain ($500,000 married) from tax.
Suppose it brings $600 a month on principal from this strategy, not from the paycheck. The loan would be paid off in 16 years 3 months instead of 30 years, saving about $196,219 in interest. To finish in five years, they would still need about $3,374 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sequences that use it
- Five-year sprint: family help: A large gift under the giver's lifetime exemption, then yearly gifts and shared costs. Fair treatment of siblings in writing.
Sources and more information
Where to get help
Related strategies
- 62. Self-employed: take the home office deduction and send the tax saved to principal
- 63. Business owners: pay your children for real work
- 64. Selling another property? Carry the note and route its payments to principal
- 65. Bank account sign-up bonuses, without credit pulls
- 69. Rent the whole house out and live somewhere free or cheaper
- 52. Rent the home for a season and live somewhere cheaper