Often, an elderly client needs cash but wants to avoid selling the home so that if the home is retained until death, the step up in tax basis available to the elderly client’s estate will enable the client and his or her family to completely avoid capital gains tax. Many practitioners also anticipate increases in capital gains tax rates in light of the substantial current deficits in Washington. This assumes that the 2010 scheduled repeal of the estate tax followed by the institution of carry over basis on death is never allowed to become effective. A reverse mortgage (see above) or a loan from a family member secured by the residence, might fund late in life costs while permitting the retention of the home to obtain the basis step up.
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