My wife and I were fortunate to retire and buy a house for about $700,000 in a growing lake community in 2012. The work-from-home boom of the past few years has increased local housing prices significantly — you can imagine how the ability to do business while sitting on your dock increases housing demand. Our house is now worth over $1.2 million, which has left us with a good problem in that my wife and I have reached the $500,000 married-couple limit for the exclusion of capital gains.
If you are both genuinely content living in this lake house and you believe it is, or could be, your forever home, think of it another way: You bought a $1.2 million home for $700,000. That’s a win-win whatever way you look at it. Weigh up the pros and cons of staying in the home from a purely lifestyle point of view. If you genuinely believe that you should be closer to medical facilities — and I think that’s an important consideration — then move.
You can also buy yourself more time by making capital improvements. If you spend $50,000 renovating your home — adding a veranda, for instance — you can deduct that expense from the capital gains. But not all renovations and repairs are eligible.