Retiring in a Warmer Climate

Baby Boomers have always had an outsize presence compared with other generations. They remained the largest living adult generation from the 1990s until 2019. With an estimated 10,000 individuals turning 65 daily, the large population will further look to enjoy retirement. For many, that could include becoming a snowbird or moving to a warmer climate entirely. Through proper planning, real estate investors might be able to fund their future retirement residence with a property they own today. The creative solution uses well-proven rules from the Internal Revenue Code, specifically Section 1031. Imagine you own a three-family investment property up north and are looking to relocate to Florida when you retire in the coming years. Only selling upon retirement would create a significant tax liability due to gains from an increase in value and depreciation. Paying both federal state taxes hinders your plan on using the proceeds for a winter residence down south. Instead, you can sell the property through an exchange today and use the proceeds for your future home after retirement. Here is the catch: the replacement today through an exchange must be like-kind property, i.e. used for investment. After the transaction is stale, you can convert the rental property to your primary residence - still not taxable. Taking the idea one step further, you sell your home up north and benefit from the homeowner gain exclusion, possibly netting up to $500,000 in gains tax-free. Talk it over with your tax professional and an experienced Qualified Intermediary (QI) like Advantage Wealth Solutions Exchange, LLC. Smart applications of the regulations can further the advantages already provided by the tax code. A thoughtfully designed exchange could be your solution to a more enjoyable retirement.