A couple in their late 60s is considering whether to sell their home and distribute the proceeds to their adult children to help them purchase houses amid California’s high real estate prices. The husband, 68, and his 69-year-old wife, both retired for over a decade, currently own their home outright and maintain steady retirement incomes. They are contemplating whether providing their children with substantial down payments now might be more beneficial than leaving the property as an inheritance.

Financial experts emphasize that such a decision carries significant risks and benefits that should be carefully evaluated. Selling the home could provide immediate financial assistance to the children, potentially enabling homeownership in an otherwise unaffordable market. However, the couple would need to transition to renting, which can involve rising costs—even in markets with rent control—and potential loss of long-term stability.

Another critical consideration is the potential tax implications of selling the property. Capital gains tax applies to profits made on the sale, calculated as the difference between the sale price and the original purchase price adjusted for improvements and selling expenses. While homeowners can exclude up to $500,000 of capital gains if filing jointly, any amount beyond this would be subject to federal capital gains tax rates, typically 15% to 20%, depending on income level. California treats capital gains as regular income, with rates reaching up to 13.3%. In contrast, if the children inherit the home, the property’s tax basis steps up to its value at the parents’ death, potentially eliminating capital gains taxes on appreciation earned during the parents’ ownership.

Conversely, waiting to pass on the home means the children may have to delay homeownership for years or decades, particularly given rising housing costs. To mitigate this, experts suggest alternative strategies such as downsizing to a smaller residence to free up funds for meaningful gifts or loans to children. Gift tax regulations require filing returns for large gifts, but the federal estate and gift tax exemption, currently around $15 million per individual, often shelters most families from owing taxes on these transfers.

Financial and legal advisors, including fiduciary financial planners and estate attorneys, can assist families in assessing how much they can safely gift without compromising their own financial security. They also help structure gifts tax-efficiently, balancing immediate support to children with the preservation of parents’ long-term needs, such as potential healthcare expenses.

In sum, while advancing an inheritance to aid children’s home purchases may align with a family’s goals, it warrants thorough evaluation of financial stability, tax consequences, and personal circumstances before proceeding.