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Selling and moving to retirement/vacation home

Submitted by jdcjdcjd@msn.com on 24 October 2007 - 3:01pm

I am a new user and am not sure quite how to correctly enter our plans to
1) Sell our current primary residence (500K cap gains exemption)
2) Relocate to our retirement/vacation home and use the proceeds from the primary residence sale to a)buy down and refinance the vacation home mortgage; b) remodel the vacation home; c) invest whatever is remaining from the primary house proceeds.

Could someone please advise as to how I can capture this accurately? My attempts to "buy" the vacation house (using its existing equity + buy down amount as down payment) as a primary replacement and "sell" the vacation home generated costs and didn't seem to capture the total value of the house correctly. Thanks much

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Submitted by Anonymous on 24 October 2007 - 8:58pm.
1

I'd like to see what Dick says about this, but let me take a stab at it.

I believe it can mostly be done with the Primary Home and Vacation Home folders.

Set up both the primary and vacation homes with the proper data as called for in those panels (current value, purchase price, taxes, etc.) That much is straightforward I believe.

Then pick your year in the future and choose to sell the vacation home by checking the "change" box in the First Change of Vacation Home panel. But leave everything there in that panel at zeros.

Next, in the First Change of Primary Home panel check the box to change your primary home and fill in the First Change panel to describe the refinance on your vacation home. (What you used to call your "vacation" home will now become your Primary home).

Any proceeds from the first primary home sale that are not used on the new primary home (i.e. what you used to call your vacation home) will be found in your Regular Assets. You can enter remodeling costs as Special Expenditures if they are not already included in the refinance stuff (see previous paragraph). ESPlanner understands the rules about cap gains (and the exemption) on the home sale and will calculate your taxes correctly for that year.

Dan

Submitted by Dick Munroe on 25 October 2007 - 7:09am.
2

lynnmelton at att.net wrote:I am a new user and am not sure quite how to correctly enter our plans to
1) Sell our current primary residence (500K cap gains exemption)
2) Relocate to our retirement/vacation home and use the proceeds from the primary residence sale to a)buy down and refinance the vacation home mortgage; b) remodel the vacation home; c) invest whatever is remaining from the primary house proceeds.

Could someone please advise as to how I can capture this accurately? My attempts to "buy" the vacation house (using its existing equity + buy down amount as down payment) as a primary replacement and "sell" the vacation home generated costs and didn't seem to capture the total value of the house correctly. Thanks much
Lynn,

It's a bit clunky since we didn't think of this particular problem as an operation that needed to be done. I'll toss it onto the heap for later consideration as a new feature.

I haven't actually tried this but it should work:

  1. Sell the vacation home.
  2. Any costs associated with the sale, e.g., points, recapture as special receipts (non-taxable).
  3. Any taxes paid as a consequence of the sale, recapture as a special receipt (non-taxable).
  4. Buy the vacation home as the primary home using the appropriate inputs for mortgage, etc.

You'll need several runs to get the various data, e.g., difference in taxes due to the sale of the vacation home but something very much like this should get you close.

Another way to do it (possibly simpler) is to:

  1. Sell the vacation home for $0 (you'll wind up with a capital loss here).
  2. Give yourself the value of the house at the time of "sale" as a special receipt (taxable). This should wash out the capital loss from above and anything you might have had to come up with from regular assets to pay off mortgages.
  3. Sell the primary home.
  4. Buy the vacation home as the primary home using the data from the vacation home as your inputs.

The only tricky part is the value of the appreciated vacation home. We don't show you that directly so you'll have to do a side calculation:

appreciatedValue = todaysValue * (1 + appreciationRate) ** numberOfYears

Which means you raise (1 + appreciationRate) to the numberOfYears (the number of years you owned the vacation home) power, then multiply that by the value of the home today to get the value of the home at the time of sale. These would be "real" (uninflated) dollars. If you need "nominal" (inflated) dollars:

nominalAppreciatedValue = appreciatedValue * (1.03 ** numberOfYears)

which is the value of the vacation home in nominal dollars. The nominal versus real may be important because of tax consequences (the tax system is all based on nominal dollars, not real dollars).

Sorry this isn't simpler.

Best,

Dick Munroe[/]

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