Should You Sell Your Home Before You Die or Keep It? A Guide to Estate Planning and Capital Gains Tax

June 19, 2025
Rockland Estate Planning

One of the most frequently asked estate planning questions is:
“Is it better to sell your home before you die or keep it until death?”
The answer depends largely on your financial situation, tax implications, and estate goals—especially when it comes to capital gains tax and the step-up in basis your heirs could receive.

In this guide, we’ll break down how selling or holding your home impacts your estate, the taxes involved, and how to make the right decision for your legacy.

Understanding Capital Gains Tax on Real Estate

Capital gains tax is incurred when you sell an asset, such as a home, for more than your tax basis—typically the original purchase price plus the cost of any capital improvements (renovations, additions, etc.), but not routine maintenance.

Example Scenario:

  • Purchase Price: $250,000

  • Capital Improvements: $50,000

  • Adjusted Basis: $300,000

  • Sale Price: $400,000

  • Realtor Fees (5%): $20,000

  • Net Proceeds: $380,000

  • Capital Gain: $80,000

If you meet certain criteria, you may be eligible for the IRS home sale exclusion:

  • Single filers: Exclude up to $250,000 in capital gains

  • Married couples filing jointly: Exclude up to $500,000

In the example above, the $80,000 gain is fully excluded—meaning no capital gains tax is owed if you qualify.

When Selling Your Home Before Death Makes Sense

Selling your home during your lifetime can make financial sense if:

  • Your total gain is within the exclusion threshold

  • You need access to the equity for retirement, healthcare, or gifting

  • You want to avoid probate delays

  • You prefer to distribute the proceeds directly to your beneficiaries

High-Gain Scenario:

  • Adjusted Basis: $300,000

  • Sale Price: $700,000

  • Gain: $400,000

  • Exclusion (Single): $250,000

  • Taxable Gain: $150,000

  • Capital Gains Tax (15%): $22,500

In this case, selling during your lifetime may trigger a substantial tax bill, which leads many to consider the benefits of holding the property until death.

The Step-Up in Basis Advantage: Why Keeping Your Home May Be Wiser

One of the biggest estate planning benefits is the step-up in basis. When you pass away, your heirs receive the home at its current fair market value—not the original purchase price.

Example:

If your home is worth $700,000 at the time of death, your heirs’ new tax basis becomes $700,000. If they sell it at that price, they pay no capital gains tax.

This strategy can save your heirs tens of thousands—or more—in federal and state taxes, making it a powerful estate preservation tool.

Factors to Consider When Deciding to Sell or Hold

Ask yourself the following:

  • How much has your home appreciated since you bought it?

  • Do you qualify for the IRS home sale exclusion?

  • Will the capital gains taxes outweigh the benefits of an immediate sale?

  • Are you concerned about probate delays or costs?

  • Do you need liquid funds for healthcare or retirement?

  • Are your heirs financially savvy enough to handle property inheritance?

Final Thoughts: Should You Sell or Keep Your Home Before Death?

Here’s the bottom line:

  • If your home’s appreciation is modest and you qualify for the exclusion, selling now might be a financially sound choice.

  • But if your home has significantly increased in value, holding it until death may offer your heirs a huge tax break via the step-up in basis.

To make the best decision, speak with a qualified estate planning attorney or tax advisor who can evaluate your unique financial and family situation.

Need personalized estate planning guidance?
Contact Rockland Estate Planning today to schedule your consultation and secure your family’s financial future.

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