Home Equity

Q&A: Can you tap your equity without triggering capital gains?

October 26, 2026 By Liz Weston 1 Comment

Dear Liz: I know from personal experience after selling a longtime residence that tax return information is shared with the Social Security Administration. If the two-year look-back shows high enough modified adjusted gross income, Medicare premiums can increase significantly. There are appeal options, but a one-time home sale doesn’t necessarily qualify.

Should the couple consider a home equity line of credit to generate funds without triggering taxes?

Answer: That’s one option a financial planner might suggest, although HELOCs typically have variable interest rates and require monthly payments, which can burden retirees.

Another possibility is a reverse mortgage, which generally costs more but doesn’t require monthly loan payments. Interest and fees increase the loan balance, reducing equity available for future needs. Borrowers must continue paying property taxes, insurance and maintenance, and the loan generally comes due when they sell or permanently leave the home.

But again, taxes are just one factor. The planner can help them sort through all their options to find one that best fits their goals and needs.

Q&A: Should you give your kids their inheritance early?

October 21, 2026 By Liz Weston 1 Comment

Dear Liz: My wife and I are 68 and 69, respectively, have been retired for more than a decade, and enjoy a comfortable retirement income from my pension and her Social Security (I’ll take mine at 70). We have no mortgage and enjoy steady growth in our retirement savings, which we rarely touch.

Both of our children have good, steady jobs but may never own homes here in California owing to extraordinarily high prices. My wife and I own our home outright and could generate north of $1 million in proceeds from its sale. Our children will inherit all of our assets, including the home, when we die, but we’re wondering “why wait?” Why not help them purchase homes now by selling ours and splitting the proceeds between them for meaningful down payments? We’re happy to rent if it means they can enjoy the benefits of home ownership now rather than later when homes will surely be even more expensive. Good idea or bad idea?

Answer: This could be a lovely idea or a disaster, depending on your circumstances and what the future may hold. If you or your wife need long-term care in the future, for example, you may regret cashing out this valuable asset.

Renting carries risks, as well. You could face potentially rising costs each year even in areas with rent control.

Also consider that selling your house could generate a significant tax bill. Your gain is generally the sale price minus what you paid for the home, certain selling costs and the cost of qualifying improvements you’ve made over the years.

You and your wife can exclude up to $500,000 of the gain, but the remainder likely would be taxable. The federal capital gains tax rate is usually 15% but can be up to 20% for those with high incomes. California doesn’t have a separate capital gains rate so you’d face an income tax rate of up to 13.3%.

If your children inherit the house instead, its tax basis generally would be adjusted to its value at your death, eliminating capital gains taxes on appreciation during your ownership. Of course, that could mean they’d have to wait decades for their inheritance, which would defeat your expressed goal of helping them buy homes now.

You may not have to give up homeownership yourself to make it possible for your children. Downsizing could help you free up cash for significant gifts, for example. (Gifts of this size generally require filing gift-tax returns, although you likely wouldn’t owe gift tax. The federal lifetime estate and gift tax exemption is currently $15 million per person.)

A fiduciary financial advisor could help you determine how much you can safely afford to give away without jeopardizing your own future. A tax professional or estate-planning attorney can help you structure any gifts in a tax-efficient way.

Q&A: What to do when a living trust document is lost

September 7, 2026 By Liz Weston

Dear Liz: My parents created a living trust in 1999 and deeded their residence into the trust. Later, they sold that home, moved to another state and put their new residence into the same trust.

In 2014, my father was diagnosed with dementia. He died in 2020. During his illness, he destroyed most of the critical information related to the trust document, such as the attorney’s name and the trust document itself.

My mother relied on my father for all things financial. She is now 89 (bedridden but mentally sharp) and in need of funds to fix her house up for sale and to provide for her caregiving.

We went to the county recorder, but they could provide no advice and will not complete a property tax deferral without a copy of the trust document.

My credit union also will not fund a home equity line of credit without the trust document. Any recommendations in addition to seeking out an estate attorney?

Answer: Return to the county recorder’s office, retrieve the deed and check to see who requested the document be recorded, suggests Jennifer Sawday, an estate planning attorney in Long Beach.

Many attorneys put either their own name or the firm’s name in that field, she says. If you can identify the attorney and they’re still in business, you can contact them to see if they might have a copy of the trust.

Keep in mind that lawyers generally aren’t required to keep such copies. The attorney’s job is to properly prepare and deliver estate planning documents, Sawday says.

Once those originals are delivered, it’s the client’s responsibility to keep and safeguard them.

If a copy can’t be found, your mother’s legal options will be heavily dependent on the state law where she now lives, Sawday says. For example, in California, people can petition the court to establish the terms of a trust.

Attorneys sometimes use this process when a trust is discovered after someone has passed away, but the original document can’t be found, Sawday says.

An estate attorney can advise your mother about her options.

Estate planning should be an ongoing process. Any major life event, including a move to a new state or a diagnosis of dementia, should prompt a review of the documents.

Even without major changes, estate plans should be checked every three to five years and beneficiary designations reviewed annually. Many people resist paying for such reviews, but the cost of correcting a mistake can be considerably more.

Q&A: The new roof is done. Now, what’s the smart way to pay for it?

December 10, 2024 By Liz Weston

Dear Liz: I borrowed $35,000 from my home equity account a couple of years ago to pay for a new roof. The house is paid for; there is no mortgage. My wife thinks I should pay off the balance, which is $29,000. This would create a significant gap in our liquid assets. The current payment is affordable and convenient, so I’m content to leave things the way they are. Am I missing something?

Answer: That depends on what you mean by “home equity account.”

When you borrow against your home’s equity, you typically use either a home equity line of credit or a home equity loan. Home equity loans usually have fixed interest rates, fixed payments and a defined payback period, such as 10 or 20 years. Home equity lines of credit are more like credit cards: They have variable interest rates, and you can draw down and pay back what you owe more flexibly.

However, HELOCs have a bit of a built-in trap. In the initial draw period, usually the first 10 years, you often don’t have to pay down what you owe. You’re typically required to pay only interest. When this draw period ends, you must begin making principal payments on any outstanding balance, so what you owe each month can shoot up dramatically.

That’s why HELOCs are often best used for expenses that can be paid off relatively quickly. If you need a decade or more to pay back what you owe, a fixed-rate home equity loan may be a better option. Some lenders offer a fixed-rate option as part of their HELOCs, which could allow you to lock in a steady rate on some or all of your balance and pay it off with fixed payments over time.

Regardless of what type of loan you have, the interest you’re paying probably exceeds what you’re earning, after tax, on your savings. Paying off a HELOC balance would allow you to tap that credit again in an emergency, if necessary. Paying off a fixed-rate loan wouldn’t free up credit immediately, but you could redirect the monthly payments into your savings to rebuild your cushion. If that makes you nervous, you could consider making larger monthly payments to pay back the loan sooner while keeping the bulk of your savings intact.

Thursday’s need-to-know money news

August 25, 2022 By Liz Weston

Today’s top story: 3 reasons not to tap your home equity right now. Also in the news: How much an abortion cost, how to tell if you’re eligible for student loan forgiveness, and what the difference between a recession and a depression is.

3 Reasons Not to Tap Your Home Equity Right Now
Borrowing against the value of your home is tempting, but consider your overall financial picture first.

How Much Does an Abortion Cost?
Abortion costs roughly $750 or less in the U.S., but access depends on factors such as where you live and how long you’ve been pregnant.

How to Tell If You’re Eligible for Student Loan Forgiveness
If you have debt from federal student loans, this is your lucky day—maybe.

What’s the Difference Between a Recession and a Depression?
There are multiple factors that contribute to these financial downturns.

Thursday’s need-to-know money news

July 21, 2022 By Liz Weston

Today’s top story: How to buy stuff that lasts. Also in the news: A new episode of the Smart Money podcast on how to build the right team, positive signs for college enrollment, and the most creative ways to use the equity in your home.

How to Buy Stuff That Lasts
Savvy consumers consider price, performance and reliability when making a major purchase, such as a car or home appliance.

Smart Money Podcast: Nerdy Business: Building the Right Team
This week, we talk with a business owner about how she launched her IT consulting business, the way she learned to choose the right partners and what her exit strategy is.

A Positive Sign for College Enrollment — Finally
After a two-year slump in college enrollment, there’s at least one early indicator of a reversal ahead: Financial aid application submissions are up.

The Most Creative Ways to Use the Equity In Your House
To start with, you can actually use a HELOC to pay off your existing mortgage.