Downsizing

To sell a home and move to a less expensive abode to free up assets for retirement.

Code Sec. 121

Provides that taxpayers of any age who sell their homes canexclude up to $250,000 of their gain ($500,000 for married taxpayers filing jointly). To qualify, the property must have been owned and used by the taxpayer as a principal residence for an aggregate for at least 2 years out of the 5 years ending on the date of sale (the ownership and use tests).

Amount Realized

Typically the selling price minus selling expenses.

Adjusted Basis

Typically starts with a home's purchase price, but includes certain settlement or closing costs, such as attorney's fees, title insurance, recording fees, and transfer taxes.

Age Restricted Housing

The Fair Housing Act allows communities to have age restrictions for residents as long as the restrictions conform with either an age 62 restriction or an age 55 restriction.

Life-Care Communities

Sometimes called continuing-care retirement communities. These are villages that provide housing and services (including long-term care) to retired parties in exchange for up-front and monthly fees.

Extensive Contract

A life lease contract that pays in advance for unlimited nursing home care at little or no increase in monthly payments.

Modified Contract

A life-lease contract that provides a specified amount of nursing home care with a per diem rate paid for usage above the specified amount.

Fee-for-Service Contract

A life lease contract that covers only emergency and short-term nursing home care in the basic agreement.  It typically, however, provides guaranteed space for long-term care on a per diem basis.

Assisted Living Facility

A housing option for senior clients combining elements of home and institutional care; often considered by clients who need some help to live independently. Residents often live in their own room or apartment and have some or all of their meals together.

Domicile

The intended permanent home of a client. Important for state estate tax purposes, it is determined by such factors as where the person spends the majority of his or her time, where he or she is registered tovote, the state his or her driver's license is from, and where his or her will is executed.

Reverse Mortgage

A way to stay in the same home while capitalizing on the home's equity. The homeowner enters into an agreement with a lender to receive payments in exchange for a secured interest in the home's equity.

Home Equity Conversion Mortgage

(HECM)

A reverse annuity mortgage program sponsored by the federal government.

Sale Leaseback Arrangement

An arrangement under which a person sells his or her home to an investor and rents it back. The seller/renter gets the advantage of removing the home from the estate and freeing up equity from the home.

Qualified Personal Residence Trust

(QPRT)

Allows the homeowner to give away the house thus removing its value from the estate, while retaining the right to live in it for a specified period without paying rent.