One option in retirement is to sell your house to a grown son or daughter, then rent the house from the new owner. Tax breaks can help such a sale-leaseback pay off. To set the stage, consider the tax breaks you might not be using after you retire:
* If you have been in the house for many years the mortgage may be paid off, or nearly so. As a home owner, you might be getting little or no deductions for mortgage interest.
* Any mortgage interest or property tax deductions you now take may have little value, if you’re in a low tax bracket in retirement.
* Like many retirees, you may not even itemize deductions so you’d be getting no tax benefit from home ownership.
On the other hand, if you sell the house to a child and rent it back, he or she can enjoy the tax benefits of owning investment property. Moreover, you will wind up with cash to support your lifestyle as well as the opportunity to stay in your home.
In many cases, it will be better to sell to one child rather to a group of children. This is likely to reduce disputes among the siblings and other complications. A fair value should be paid for the house, to avoid hard feelings among the other children.
In all cases, this should be done with the advice of a tax attorney.