- The Washington Times - Friday, December 1, 2000

Deciding when to scale down your living quarters can be more important than choosing where and how.

The issue of scaling down becomes more important to homeowners who are facing their golden years or are ready to cash in the larger house once the children go to college or start families of their own.

If you are approaching retirement, you may find that you are ready to give up the home maintenance, higher utility bills and extra (empty?) space. It can be a tough decision. Many older homeowners fear the change accompanying the sale of their house and want to hold on to the familiar environment of the house they have transformed into a home.

I like what my sixtysomething father told me recently. He said he's considering trading in his three-bedroom, traditional ranch home on a 4-acre plot atop a mountain in Alabama for some property near the ocean. "If I move to Florida, I'd like to enjoy it a while before I get too old to get around," he said.

Good attitude. Having moved about every three years because of his work as a Baptist minister, he has found it easy to adapt to change. Many people aren't that flexible.

For those who have retired already, living in an older home can begin cutting into their already fixed income as the aging house needs more repair. Also, the house will need to be sold eventually, and without a complete make-over it might sell at a much lower price than the market would demand, reducing the homeowner's equity.

Low maintenance and affordable living are good options. To help with scale-down decisions, the AARP has produced a list of questions to ask yourself (or review in conference with adult children) when considering where to move (if anywhere). I have placed a few of them here, but for the full list, visit the group's Web site (www.aarp.org/indexes/life.html#transition) and click the link to Housing Options: Factors to Consider.

• Amenities: Does the residence have the style of living you desire (private apartment, private room, private bath)? Is it attractive and in good repair? Does it have the level of comfort you desire (equipment, electronics, garden areas, windows, space for entertaining or hobbies)?

• Location: Is it in a safe neighborhood? Is it convenient for shopping, doctor's visits, religious services and social contacts? Is it reasonably close to your adult children's homes? Is public or private transportation provided or easily accessible?

• Safety: Does the facility have requisite safety equipment such as fire extinguishers and smoke detectors? Are doors and locks secure? Are there any obvious hazards?

• If considering moving in with your children: Will this move cause family problems? Can everyone living in the house get along with one another? Is the space adequate? Is the house equipped for the older adult? Can the adult child give the parent the attention he or she needs and expects? Are your lifestyles compatible? What are the advantages and disadvantages for both parties? Are you all comfortable with this serious commitment and reasonably sure it will work?

Another factor to consider about the timing of scaling down is the $500,000 exclusion available to married homeowners ($250,000 for singles) when selling a principal residence. If both homeowners are living, the timing of a sale could be even more important (especially if you live in a home with more than $250,000 in home equity).

Here is a question posed on the National Association of Realtors' corporate Web site about the death of a spouse and this exclusion:

"My spouse died this year, and now I want to sell our principal residence. Can I claim the $500,000 exclusion?"

The answer: "Maybe, but to qualify for the full $500,000 exclusion, you must sell your residence during the same tax year in which your spouse dies.

The reason for this is that you are allowed to claim the $500,000 exclusion only if you file a joint return, and after the death of your spouse, you are permitted to file a joint return only for the year of death.

If you sell in a later year and file a single-person return, you qualify only for a $250,000 exclusion.

You should check with a tax adviser to see if the estate tax laws could favorably affect measurement of your gain."

So, waiting too long to sell could mean you lose a tax shelter of $250,000 and pay substantial taxes on the gain of the house.

As with any endeavor in life, timing is everything possibly even more so in the field of real estate.

M. Anthony Carr has written about real estate for more than 11 years. Direct inquiries and comments to 8411 Arlington Blvd., Fairfax, Va. 22031; or by e-mail ([email protected]).

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