What To Do With The House?: A Tax Planning Case Study for Families Looking to Fund Long-Term Care

00:00:00
If you have a parent who owns a home and they're reaching the point in life where their physical and/or their mental health is rapidly declining and they need additional care, there is a clock ticking on decisions that most families don't even know they need to make. And those decisions, specifically what to do with their house and how to fund their care, carry tax consequences that can either preserve tens of thousands of dollars for the next generation or quietly hand it to the IRS. Typically, the responsibility of figuring all this stuff out lands on your shoulders. So in this episode, I'm walking you through a real-world case study step by step so you can see exactly how this can play out while minimizing taxes as much as possible and funding their care.

00:01:15
Hello and welcome to Retired-ish, a podcast for folks who are approaching retirement and want the truth about what really matters when it comes to their money. I'm your host, Cameron Valadez, certified financial planner and enrolled agent. Today's episode is one that I think a lot of you are going to relate to, whether you're the aging parent yourself, trying to figure out how to plan for your own care needs one day and how that will impact your finances and your family, or you're the adult child helping your mom or dad navigate a really difficult season of life.

We're talking about what happens when a parent's health begins to decline, long-term care becomes a reality, and the family home is often sitting there as the biggest financial asset in the picture that may have to be the mechanism by which care is paid for. And I want to be upfront, as I usually am, this is not a simple topic. This can be a layered, technical conversation involving tax law, IRA distribution strategy, Social Security, medical deductions, and estate planning. But that's exactly what this show is for. I'm going to break it down so hopefully you can understand the logic, the decisions, and the stakes at play, because if you don't understand the stakes, it's hard to make a decision that actually works out financially and that you can feel good about in the long run.

00:02:40
We are going to walk through the hypothetical story of Tom and his daughter, Lisa. Now, this is a comprehensive case study. It's a scenario that reflects situations our firm, Planable Wealth, guides families through quite regularly. By the way, many families may consult someone like an elder law or estate planning attorney in situations like this, and they may try to recommend major estate and Medicaid trust planning. I just want to let you know that we are not going into that in this episode because oftentimes that is something to consider, maybe as a last resort, and typically leads to bottom-of-the-barrel care for your parent or for yourself, which I'm sure most of you would not want for your parents. So without further ado, let's get into it.

00:03:27
Meet Tom. Tom is in his early 80s. He has Parkinson's disease, and he lives alone in his home, a house that he bought back in 1965. It's fully paid off, by the way. No mortgage. It's important to remember that because that will actually affect how things play out later in our different scenarios. His income is modest. He's got a decent Social Security benefit, a small pension from a former employer, and an IRA that he currently takes required minimum distributions, a.k.a. RMDs, out of, but he could tap it for large lump sum expenses if he needed to. In other words, it's pretty liquid.

His daughter, Lisa, is in her peak earning years, busy in her career, married with kids in college, financially stable, but getting to the point where adequately caring for her father is becoming a real challenge since everything is on her. Lisa's siblings live in other states and can't help very effectively. And Lisa's daughter, Jessica, also helps out when she can, covering groceries, utilities, transportation, that kind of thing. Lisa is in what I like to call the sandwich generation, and many of you probably are as well. This is a lot of you Gen Xers and maybe even late Baby Boomers out there that are sort of stuck in the middle between taking care of your parents, but also your own adult children.

Lisa, in our case, has been paying for Tom's long-term care insurance, which is also going to become a very important detail later. And just as a side note, a lot of times the individual that will need care will purchase their own long-term care insurance when they're a bit younger, in their late 50s or in their 60s. However, in this case, Lisa did not want to take the risk of possibly having to fund the majority of her father's care later in life, so she purchased long-term care insurance for him many years ago. And it turns out that it was a good thing that she did.

00:05:31
Tom knows his situation. He's not naive, and mentally he's still with it. He's thinking about what comes next, and he's identified three realistic options for what to do with his home. Option one, he can sell the house and transition to a nursing home or move in with his daughter, Lisa. And while it's not her favorite option, she is open to him doing that. Option number two, he can rent the house for income to help pay for his care and transition to a nursing home or, again, into Lisa's home. And option number three, he can stay in the house and hire in-home care.

These aren't hypothetical exercises. These are urgent, real decisions with real financial and tax consequences, and the order in which you make them matters enormously.

Before we can analyze any of these options intelligently from a financial and tax perspective, we need to understand Tom's baseline tax situation because that baseline shapes everything. And while I typically don't let taxes solely influence the decisions that you make, especially when it comes to caring for a family member, the more tax-efficient you can go about this, the more money will stay in their pocket and the more money they will have for care or for better care.

00:06:54
Tom pays currently no federal income taxes. That's because his income, other than Social Security, is low enough that he falls below the threshold where Social Security actually becomes taxable. This is essentially because Social Security is taxed differently than other types of income that you may have. In Tom's case, the majority of his income comes from his Social Security benefits. But here's the critical concept that you need to know about all of this income and tax stuff. The moment Tom starts pulling significantly more money out of his IRA or generates maybe rental income from potentially renting his home to help supplement the cost of his care, his Social Security can become taxable to an extent, a what I like to call shadow tax that most people don't see coming. And it becomes a major planning issue in retirement for a lot of people. So you take a distribution from an IRA, and you not only pay tax on the distribution, but you may also trigger taxation on income you were already receiving that maybe you weren't paying on taxes on in the years prior. This is why tax planning is so important at this point in life.

00:08:16
Okay, so let's get into his options. Option number one: sell the house. Tom decides to sell and move on. And let's just say he's going to move into a facility. The first thing we have to do is figure out what we call Tom's adjusted cost basis in his home. Cost basis is what you paid for an asset, essentially. Then it's adjusted for certain improvements and other items. It matters because when you sell that asset, you subtract your adjusted cost basis from your sale price to determine your taxable gain or loss, actually. The higher your basis, the lower your gain. It seems so simple, yet it's commonly determined incorrectly, and there can be big dollar consequences when that happens.

Tom bought the house in 1965 for $50,000. He had some closing costs at the time, things like abstract fees, legal fees, recording fees, survey transfer taxes, title insurance, all the above, totaling about $1,000. So his original cost basis starts at roughly $51,000. That's the $50,000 for the home plus his closing costs. Just for your information, these are 1965 numbers. Today, all those extra closing costs can amount to much more than just $1,000 and therefore will have a much bigger impact.

Here's the first tip I will give you. Always hold on to your original closing documents. Hold them forever. Keep the physical copies and scan and upload them to something like a hard drive or a secure cloud of some sort. Those costs from your original purchase can be included in your cost basis when and if you sell. And most people have no idea where those documents are. And so if you can't locate them and you don't know what the amounts were, you are losing out and probably overpaying in taxes.

00:10:15
Over the years, Tom has made improvements to his home, like many people do. And I want to be clear here, improvements are not the same as repairs. Repairs maintain the value of a home or a property. Improvements add value, extend the life of the property, or adapt it to some sort of new use. For example, simply painting your house is considered a repair, even though it might be really expensive. However, if you're remodeling the entire exterior of your house or you're putting an addition onto the house, like a patio or something, and painting the house is part of that remodel, then it could be considered an improvement when it comes to taxes. Adding a new roof, however, is definitely an improvement. Replacing a broken window that's a repair. Adding a bathroom, that's an improvement. So this distinction matters because improvements add to your basis while repairs do not.

So in Tom's case, he put on a new roof in 1985. He did a bathroom remodel in 1995. He installed a new furnace in 2024. And Lisa, his daughter, installed a stairlift in 2024 as well. After factoring in things like energy credits and some other nuances we'll get to in a second, his new adjusted cost basis in his home comes out to $81,000. Here's where it gets interesting, and this is one of my favorite parts of this entire case study. Lisa installed the stairlift for $15,000 since Tom had just made a large expense for the furnace shortly beforehand. But Tom only got to add $4,000 of that $15,000 to the basis in his home. Why is that? Because due to some good tax planning, Lisa was actually able to claim $11,000 of the stairlift as a qualified medical expense deduction on her own tax return. And the reason she could do that is because she was able to prove that Tom is her dependent by using what is called a multiple support agreement. I'll explain what this is because most people have never heard of this.

When multiple people contribute to supporting someone like an elderly parent, in this case, Lisa and Jessica, in your case, it may be you and your siblings. I don't know. There are situations where no single person pays more than half of the parents' total support. Normally, to claim someone as a dependent for tax purposes, you have to provide more than half of their support. So it's the opposite. But under a multiple support agreement, if a group of people collectively provides more than half the support and each individual contributor contributes at least 10%, and everybody signs a special IRS tax form agreeing on who claims the dependent that year, you can rotate who claims the parent as a dependent if you want.

00:13:24
Now, why does this matter? Because whoever claims Tom as a dependent can deduct qualified medical expenses they pay on his behalf. This means that if you are the child helping pay for these medical expenses for your parent and you already itemize your deductions on your tax return because maybe you have a pretty large mortgage, you live in a nice area, your property taxes are fairly high, and maybe you're in your peak earning years and you pay a lot of money in state income taxes, you could have really high itemized deductions. And these medical expenses that you're helping them with could add to those other deductions, and you might get a tax benefit for it.

This strategy really shines in situations like Tom and Lisa's because Tom typically uses the standard deduction on his tax return instead of itemizing his deductions. Why is that? Well, it's because he has no mortgage, like I mentioned in the beginning, so he's got no mortgage interest write-off. He bought his property in 1965, so his property taxes are very low. And lastly, he doesn't pay anything in state taxes because he doesn't owe any taxes due to the sources of his income. Other than that, he's just got a little bit of sales tax that he could utilize as an itemized deduction. But overall, the standard deduction gives him a much larger benefit every year, or at least it has in the past. And so if he were to add a $15,000 medical expense for a stairlift, he would likely not have gotten any tax benefit for it.

00:14:59
So in this case, Lisa paid for the $15,000 medical improvement to Tom's home, and she got to deduct $11,000 of it as a medical expense, which, in her tax bracket, was worth somewhere between $2,000 and $4,000 in actual tax savings. It's important to know that in a situation like this, you can't double-dip. You can't take a medical deduction for something and also add it to the basis of an asset like a home. So only the $4,000 that Lisa couldn't deduct got added to Tom's basis, but the overall outcome was still excellent. You might be wondering why she only got to deduct $11,000 out of the $15,000 total. And that is simply because of certain limitations on her own tax return. Every situation will be entirely different.

Okay, so let's compare that to an alternative. Let's say Tom withdraws $15,000 from his IRA to pay for the lift himself. He gets no deduction because he's not itemizing. He pays taxes on the additional IRA distribution, so he'd have to take out more than $15,000. And worse, that extra income would cause more of his Social Security to become taxable, or it would cause it to become partially taxable. So he might end up paying thousands of dollars in taxes just to net $15,000 out of his IRA to get the stairlift. In other words, it would have been a much more expensive stairlift compared to paying $15,000 and then somebody actually getting tax savings, which could be looked at as a discount on the stairlift. Hopefully, that makes sense. It would have been a disaster compared to how it was actually handled. Lisa paid for it, got a deduction worth real dollars, and Tom preserved more of his IRA balance, growing tax-deferred, and kept his Social Security benefits tax-free.

00:16:57
All right, now back to the sale. Tom's house sells for $300,000. His selling expenses, which were commissions to the realtor, fees, other closing costs, came out to about $21,000. So his amount realized is $279,000. Now subtract his adjusted basis of $81,000 that we already calculated, and his potential capital gain is now $198,000. But here's the part most people have heard of but don't fully understand, and that's called the Section 121 gain exclusion. Under current tax law, if you sell your primary residence and you've met a few very key tests, you can generally exclude up to $250,000 of capital gain from taxation if you're single or $500,000 if you're filing your taxes married filing jointly. This is also called the home sale exclusion. So many people have heard of it, and it's one of the most valuable tax breaks in the entire tax code.

00:18:06
Now, in this case, Tom definitely qualifies. He's owned the home for decades. He's lived there continuously, and he's got no other weird stuff going on that could throw a wrench in his situation. So his $198,000 gain is obviously below the $250,000 single filer exclusion. So what's his actual taxable gain if he were to sell the home? It's zero. He pays nothing on the sale currently. What can he do? He can take those net proceeds, call it $279,000, invest it prudently, likely with the help of a financial advisor that's experienced in this kind of planning, and use something like a tax-efficient distribution strategy to help fund his care going forward. In other words, he can use those investments to create another source of income to help him pay for his care.

00:19:03
And one more thing for those of you in high appreciation markets like California, New York, Mass., etc., your home may have, but not always, appreciated so much beyond your cost basis that you blow right past the $250,000 or $500,000 exclusion, even after accounting for improvements and things like that. In that scenario, selling might not be the right move because you could be sitting on a massive taxable gain. Now, again, sometimes you just have to rip the Band-Aid off, pay some taxes, and go about your situation. Remember, taxes don't dictate or shouldn't dictate all of our decisions, meaning it still might make sense even though you'll owe some taxes. However, there could be other options that still work while avoiding a massive amount of taxation in cases like this.

For instance, renting the property and holding it until death may be a better option for tax purposes. However, this will always be highly dependent on each person's unique situation. And we run into this a lot, actually, or we have in the past. If there were other assets held by the homeowner, a.k.a. your parent, such as stocks or bonds in a brokerage or a trust account that temporarily at the time had unrealized losses, meaning the things they hold in the account, like stocks, for example, might be currently worth less than what they bought them for, those assets could be sold and the losses harvested to offset any potential gains that could be realized from the sale of the home. And this can be an extremely powerful opportunity because, one, the market is volatile. It's not always going up. Sometimes you're going to have positions if you have investment portfolios that are down. And if the parent passes away with significant unrealized losses in a brokerage account or a trust account, the beneficiary, a.k.a. you, will likely get what's called a step-down in cost basis, which is not good from a tax savings perspective. And this is unless, of course, you and/or your parents do some good planning and recognize these losses before your parent passes away.

00:21:30
I know this stuff can get really advanced, and that's why it's probably best to reach out to a qualified financial and/or tax professional if you're in a situation like this. But you just need to know that there may be options out there to reduce a potential gain.

Speaking of renting, let's explore Tom's option number two, which is to rent the house. On the surface, renting the property seems very attractive. Tom moves into a care facility. The house generates monthly income, and that income helps cover his care costs. Sounds great. But there are some real-world complications that families often underestimate, and some tax traps you need to know about before you commit to this path. We don't want to just make decisions based on back-of-the-napkin math in these kinds of situations. We have to think about the reality of the situation at hand and in the near future. That being said, first, the practical realities. The house needs to be cleaned out. It needs to be prepped for a tenant and potentially a storage unit secured. Finding the right tenant takes time. Setting up the proper lease agreement takes time. And I would advise you not to cut corners and just take the template cookie-cutter contract that the local realtors' association has. While all of this is happening, Tom's care costs continue to occur and be built. There can be a gap between when care starts and when rental income actually begins. So that needs to be planned for.

00:23:08
Now, once a tenant is in place, someone needs to, of course, manage the property. You need to determine is that going to be you? What about your siblings that may not live near your parent? They're not going to be able to help you. Are you going to have the time to do all of that yourself? Are you going to have the wherewithal to do that? What else do you currently have going on in life? Is this going to be too much of a burden and stress you out and drive you crazy? A professional property management company is definitely also an option, but just know that it will eat a little bit into your cash flow because it's a service and it's not free. Even if you hire a property manager, things break. Tenants call. Decisions have to be made. Information has to be gathered every year for tax purposes, etc. And for Lisa, who is in her peak earning years with limited time and her own retirement and children's well-being to worry about, this is a very real burden for her to consider.

00:24:06
Now let's talk taxes. Most of the income that Tom generates from the rental will be taxable because he has no mortgage, which means no interest deduction. His property taxes are low because the home was purchased in 1965. So he's likely going to show positive net income, which is the total rental income minus the expenses, after he takes a little bit of what's called depreciation expense. That additional income will very likely cause his Social Security benefits to become taxable, like we mentioned earlier. So while he will generate more income from the rental, he will also lose some income to taxation.

And here's another wrinkle in this situation, if Tom decides to move out and rent, when Tom was living in the house, his property taxes could be included in his itemized deductions if he were to ever get the chance to itemize, along with any other out-of-pocket medical expenses, which he will have a lot more of once he starts paying for care. But once he rents the property, the property taxes get deducted from the rental income on a completely different part of the tax return. Those property taxes no longer help him clear the standard deduction threshold, along with the new medical expenses. In addition, when he introduces more income from the rental, he now makes it harder to deduct his new medical expenses because he essentially raises the threshold in order to begin deducting medical expenses. And if that happens, he may be stuck using the standard deduction while simultaneously recognizing more taxable income from the rental and more taxable Social Security.

00:26:01
Now, I know your heads are probably spinning after that last part, but the good news is that you don't need to know how to do that. You just need to know that these tax nuances are very important and that you need to account for it. And I will tell you, an AI tax program or chatbot is not going to be able to tell you that ahead of time either. And you're probably not even going to know to ask it that unless, of course, you listen to a podcast like this one.

That being said, the net effect after taxes needs to be modeled carefully before you decide to rent. However, there are situations where renting absolutely can make sense, particularly when someone is sitting on a gain that significantly exceeds the exclusion, like I mentioned before. If Tom had lived in, let's say, Pasadena, California, his whole life, and his home was worth $1.5 million now, and let's say he had $100,000 in cost basis, selling would mean recognizing over $1.1 million in gains after his exclusion. So in a scenario like that, it might make far more sense to rent the property, preserve the equity, and let it pass at his death to his heirs, who will receive what we call a step up in cost basis, which is great for them tax-wise and allows Tom to pass down more of his wealth rather than give it up to the IRS and the state of California.

00:27:29
I mentioned a step up in basis. Here's what that means and how it works. Generally, there are exceptions, of course. When you inherit a capital asset like a property, your basis is generally reset to the fair market value on the date of death of whoever owned it. If Tom rents that $1.5 million home, holds it until he passes, and then Lisa and her siblings inherit it, assuming it hasn't appreciated anymore, Lisa's basis is going to be around $1.5 million. So theoretically, if she could turn around and sell it the next day, she would owe little to nothing in taxes and might even have a tax loss on paper due to selling expenses for the home when it's sold. Compared to Tom selling during his lifetime and paying capital gains taxes on over a million dollars, this step-up strategy can literally save six figures in taxes. And this is exactly why I say the decision is not obvious from the outside. It depends on the numbers in your specific situation. It depends on the location and the condition of the home, as well as things like family dynamics and the realities of how things could possibly play out, not just what we assume will happen.

00:28:50
Now, I want to give you one last rental warning. If Tom rents the property for a period of time and then decides to sell it later, or maybe he wasn't planning on selling it, but he ends up having to sell it later because his cost of care increases so much that he needs immediate liquidity, he or Lisa needs to track his time carefully. One of those tests that he has to meet for that exclusion is a two out of five year residency test. So he can't necessarily hold the rental property indefinitely and still expect to get the full exclusion if and when he sells. In a case like this, he may qualify for a partial exclusion, but generally, the longer he holds it as a rental, the less favorable the math becomes.

And of course, there is yet another exception here that largely depends on where Tom goes. For instance, if he were to move into a facility where he's receiving constant care that qualifies as medical care rather than to Lisa's home, he may be able to meet a medical exclusion where the time he has spent in the facility thus far won't actually count against him as not living in his own home. And he may still be able to get the full exclusion, even if it's years later. But those kinds of details are beyond the scope of this episode. So get with your tax professional or contact Planable Wealth if you're in a situation like this.

00:30:26
Ah, but wait, there's one more trap if Tom decides to rent it for a little bit and then sell it while he's still alive, and that's called depreciation recapture. So when you rent a property, you take annual depreciation deductions on your tax return rather than dive too deep into the definition of depreciation. Essentially, it's a real tax benefit that you get while you own it and you're renting it out. Generally, it's a good thing and can be one of the primary advantages to investing in real estate. But if and when you eventually sell, any depreciation that you previously claimed is not eligible for that Section 121 exclusion that we've been talking about. It gets recaptured or pulled back at a special tax rate of up to 25%. So those deductions that you got while renting for depreciation don't disappear. They come back to bite you, essentially, at or upon sale. So not necessarily a reason to avoid renting completely, but you just need to know that that's coming if this is your situation.

00:31:41
Option number three: stay and hire in-home care. Honestly, this is where this case study gets really powerful from a tax planning standpoint. So let's say Tom decides to stay in his home, and Lisa, remember, has been paying for his long-term care insurance, and she made improvements to the home, that stairlift we talked about, specifically to help him age in place. The long-term care insurance and his income cover most of his care costs for a licensed professional to come to the house. But his Parkinson's disease has a specialized care component that will cost an additional monthly amount of $1,500 a month, and that is not fully covered, again, by his policy. That's $18,000 per year in additional unreimbursed out-of-pocket qualified medical expenses. Now, a lot of people in Tom's situation would probably panic at this point. They'd see the new expense and immediately think, "We need to sell the house or pull out home equity to pay for this." And they might even think, "Hey, I can't take any more money out of my IRA because my tax people said that it will make my Social Security taxable." Both of those instincts would be understandable, but in this exact scenario, they would be wrong. Here's what actually happens when we run the numbers.

00:33:08
Tom increases his IRA withdrawals by roughly $18,000 per year to cover the additional specialized care costs. And yes, that extra income from the IRA initially makes more of his Social Security potentially taxable. But, and this is the key, that $18,000 in unreimbursed specialized care is a qualified medical expense that can be deducted in his situation. When you add it to his other out-of-pocket medical expenses plus his Medicare Part B premiums, his total medical expenses combined with his property taxes and sales taxes paid push his itemized deductions well above the standard deduction. In other words, the tax deduction from his medical expenses helps offset the tax that would otherwise be owed on the additional IRA distribution. And on top of that, his income total still falls below the threshold for the new enhanced senior deduction that was introduced by the One Big Beautiful Bill. This is a new planning opportunity that's worth paying attention to year in and year out.

00:34:24
So what's the result? Tom still owes zero federal income tax. And for fun, when we ran his California numbers, zero state income tax either. But wait, it gets even better from an estate planning standpoint. Think about what would have happened if Tom had, let's say, tapped his home equity instead of his IRA to help pay for his care. When he passes, Lisa would inherit a home with reduced equity because he would have spent some of it on care, plus a traditional IRA that she'd have to fully distribute within ten years. And she'd be distributing it at her tax brackets, which, as we already went over, are much higher than Tom's. He's not paying any tax, in fact, and Lisa is in some of the highest tax brackets because she is still in her peak earning years.

00:35:16
So now let's flip that around. Tom spends down the IRA, which is otherwise fully pre-tax. It's a fully taxable account on every dollar distributed while he's alive. He does it in years when his medical expenses create enough deductions to offset the tax impact. So he effectively extracts pre-tax IRA dollars tax-free. He preserves the equity in his home so that when he passes, Lisa instead inherits the full amount of equity in the home and gets a full step up in cost basis, making most of the inheritance essentially tax-free to her. There's less IRA money, or maybe no IRA money, left for her to inherit and pay ordinary income tax on at her high rates. That is extraordinary planning: spending the right asset at the right time for the right reason, and the math actually works. Tom gets the care he needs, preserves more of his estate, and Lisa ends up better off. That's the power of coordinating tax planning with estate planning and health care decisions at the same time.

00:36:28
I want to take a moment to sidestep here. Not all long-term care expenses are actually qualified medical expenses for tax purposes. So the type of care that you're receiving or your parents receiving matters, and it matters a lot. Whether it's medically necessary matters, whether it's provided under a plan of care prescribed by a licensed health care professional matters. This is an area where you need to work closely with a professional, not just take a guess and hope it holds up. Also, when it comes to reimbursements from a long-term care insurance policy, those amounts are generally excluded from income, tax-free, in other words. But if the policy pays on what is called a per diem basis or a fixed benefit basis rather than reimbursing actual expenses incurred, there are limits on the excludable amount. So the exact policy language is critically important to have and understand. And a lot of people, including professional advisors, gloss over this all the time. So don't let yours.

00:37:35
Here we are at the crossroads, the final decision. Does Tom sell, rent, or stay? And it was actually a trick question because all three options are viable in this hypothetical situation. When multiple options work, the decision often comes down to two things: what outcome do you want for your estate or your legacy, and what are your personal preferences while you're alive?

Selling and moving into Lisa's home or a facility gives Tom immediate liquidity. He gets a clean break from property ownership and, in this specific situation, zero taxable gain thanks to the Section 121 exclusion. Then he can reinvest the proceeds and build a tax-efficient income plan from there to help pay for his care. For families where the property doesn't have a massive potential gain, this is often the most straightforward path and can work very well.

Renting keeps the door open for a step up in basis for heirs and can generate ongoing income, but it comes with landlord headaches, potential tax complications from rental income, and potential depreciation recapture on a later sale. It's the right call in specific circumstances, mainly when the gain is enormous and otherwise unavoidable, but it requires a careful after-tax analysis before fully committing.

Staying in the home with the right support systems in place can be both the most cost-effective option and the most tax-efficient one, especially if there is something like a qualified long-term care policy in place and the family can coordinate who pays what to maximize deductions across multiple tax returns. In Tom's case, staying allowed him to extract IRA dollars tax-free that were otherwise fully taxed. So during those high-expense years, he was able to offset the taxable income from the IRA and preserve his home equity for Lisa and her siblings to inherit.

00:39:47
So the bottom line is that there is no universal right answer, at least in this situation. Your situation, your assets, your family dynamics, and your health trajectory will all shape which path makes the most sense for you. But you have to understand the options before you can choose intelligently. And most families are making these decisions during crisis mode, during health events, under stress. Without an experienced financial advisor or tax professional that deals with this regularly in the room, that's exactly when mistakes happen.

00:40:24
So let me leave you with a few things to take away from this episode. First, know your cost basis. If your parents have owned their home for decades, find the original closing documents and start tracking improvements. This information could directly reduce taxable gain on a future sale. Second, understand the 121 exclusion and its eligibility rules. We did not discuss what those were in this episode. Third, don't automatically assume you should avoid recognizing more income just because of Social Security taxation. In high medical expense years or high itemized deduction years, those deductions can offset some or all of the income that you bring in. So run the numbers before you decide. Fourth, look into whether a multiple support agreement applies to your family's situation. This is a vastly underused tool. I can tell you that from experience, and it can create real tax benefits for adult children in that sandwich generation who are helping support an aging parent. And fifth, and I'll say this every time, get qualified professionals involved before you make these big decisions, not after. The difference between a good outcome and a great one can be massive. Not only that, the difference between a good professional and a bad professional can also be massive.

As always, if this episode was helpful, please follow the podcast and share it with someone you know who's navigating this stage of life with a parent or for themselves. This is exactly the kind of information that doesn't get talked about enough.

00:42:03
I'm giving you so much great information. I'm literally losing my voice. I got to wrap this up here. Be sure to check out and subscribe to the Retired-ish newsletter to get more useful information on retirement planning, investments, taxes once a month straight to your inbox. Our newsletter often dives deeper into some of the topics we discuss on the show, as well as offers some useful guides and charts available for download. If you want to start implementing planning like this into your own life, you can find links to the resources we've provided in the show notes right there on your podcast app, or you can head over to retiredishpodcast.com/89. Once again, I'm Cameron Valadez, certified financial planner and enrolled agent. Thanks for tuning in and following along. See you next time on Retired-ish.

00:43:11 Disclosures
Cameron Valadez is a registered representative with, and securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics, such as budget, assets, risk tolerance, family situation, or activities, which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims-paying ability of the issuing company. If you need more information or would like personal advice, you should consult an insurance professional. You may also visit your state’s insurance department for more information. Tax and accounting-related services offered through Plan-It Business Services DBA Planable Wealth. Plan-It Business Services is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax and accounting-related services. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. All investing involves risk, including loss of principal. No strategy assures success or protects against loss.