Dear Liz: You recently responded to an elderly couple who planned to move into assisted living, but were concerned about capital gains taxes on the sale of their home. You suggested an installment sale or renting out the home as possible options. While not for everyone, another possibility is a home loan or a reverse mortgage to cash out tax free.
Answer: Reverse mortgages have to be repaid if the borrowers die, sell or permanently move out of their homes. If one of the spouses planned to stay in the home, a reverse mortgage might work, but not if both plan to move to assisted living.
A home equity loan or home equity line of credit might be options if the couple have good credit, sufficient income to make the payments and a cooperative lender. A tax pro or a fee-only financial planner could help them assess their options.
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