Tag Archives: tax free capital gain on principal residence

Is it better to rent or to own if you are living on a fixed income?

For many Canadians the family home is their biggest asset. Therefore, they must consider how to best make use of that home as part of their retirement plan.

The question is:

Is it better to sell the home and use the capital (but if  you are a U.S. citizen see the warning below) from the home to provide income to rent? Or is it better to retain the home and continue to live in it so that one doesn’t have to rent. Renters can be subject to unpredictable rent increases. Furthermore, at the present level of low interest rates, it is difficult to achieve predictably high returns on investment capital.

So, what’s a poor potential retiree to do?

Excerpts from the article referenced in the above tweet include:

A big financial disadvantage for older renters, however, is that as rising rents take a bigger portion of a fixed income, there is no offsetting increase in equity like there often is when you own a home. And rental prices can double over a 25-year period.

Charles Farrell, a financial planner with Northstar Investment Advisors LLC in Denver, says if a rental starts out at 30% to 40% below the prior mortgage payment, it may be worth considering. But he advocates that seniors not spend more than 15% of their annual retirement income on housing—rented or owned—because as the years progress, medical expenses typically rise. (Other financial planners says seniors should spend no more than 25% on housing, and less if they own a home outright.)

Do property taxes turn owners into renters?

The following two comments appeared in conjunction with this article:

One of the largest expenses for owning a home at any age are the property taxes. As seniors on fixed incomes, the battle against voracious local government spending can easily turn owners into renters. Seniors should not have to pay property taxes for services they no longer use,e.g., schools which are typically the largest component of property taxes. Take school district taxes out of the equation and the housing expense largely goes away.

Some states and counties, in recent years, have become more tax-friendly for seniors.

Georgia allows all retirees 65 and older to pension and investment income from state taxes: up to $65,000 for an individual and $130,000 for a married couple filing jointly.

Cobb County (northwest Atlanta suburb) exempts all homeowners 62 and older from all school and school bond taxes.

The aim of the exemptions is to attract law-abiding financially secure seniors. They, in turn, will create demand for new housing, and more health care and service industry jobs.

Smart policy.


Finally, this question may be answered by whether you are a U.S. citizen!!!

Remember that those Canadian residents who are U.S. citizens will be subject to capital gains tax on the sale of their principal residence. Therefore, for U.S. citizens, the sale of the principal residence will be less advantageous than for those who are NOT subject to the burdens of U.S. citizenship!