You’ve paid off the mortgage. The kids are gone. Three of the five bedrooms haven’t been used for anything but storage in a decade, and the property tax bill still shows up every year like clockwork. Selling and moving into something smaller sounds like the obvious move. It usually is a good move. It’s just rarely as simple as listing the house, buying something smaller, and pocketing the difference.
The rules around home sales, taxes, Medicare, and moving costs have all shifted in the past couple of years, and a lot of the advice floating around is either outdated or written for people 20 years younger. Here’s what actually matters if you’re doing this in 2026.
Table of contents
- The tax break on selling your home is bigger than most people think
- Retirees are sitting on more home equity than at any point in history
- Buyers have more leverage than sellers expect right now
- You don’t owe an agent 6 percent anymore
- The move itself has its own price tag
- What’s inside the house can help pay for what’s outside of it
- A big profit on the sale can quietly raise your Medicare bill
- Leaving the house to your kids might be the better tax move
- The property tax break you built up might not follow you
- Required withdrawals don’t pause while you pack boxes
- A 55 plus community isn’t automatically the cheaper option
- Assisted living and downsizing are different
- Fixing up the house you’re in might cost less than leaving it
- A reverse mortgage is a loan, not a windfall
- Most retirees don’t actually want to leave, and that’s a fine answer
- A cheaper state doesn’t always add up the way the spreadsheet says
- Waiting for a crisis to force the decision costs you your choices
The tax break on selling your home is bigger than most people think
If you’ve owned and lived in your home for at least two of the last five years, you can exclude up to $250,000 of profit from taxes if you’re single, or up to $500,000 if you’re married and file jointly. This isn’t a deduction you have to claim in some complicated way. It just comes off the top, and you can use it again on a future home sale as long as you meet the same ownership and use rules.
For most retirees selling a home they’ve owned for decades, this wipes out the entire tax bill on the sale. A couple who bought their house for $150,000 in 1995 and sells it for $600,000 has a $450,000 gain, and the $500,000 exclusion covers all of it. Things only get uncomfortable if your gain runs past those limits, which is more common now than it used to be in expensive coastal markets, since the exclusion amounts haven’t been raised since 1997.
Retirees are sitting on more home equity than at any point in history
Homeowners age 62 and older are holding a combined $14.92 trillion in home equity, a record high, and homeowners in that age group now own roughly four in ten homes in the country. The median homeowner 65 and older holds about $250,000 in home equity, and more than three-quarters of people in that age group own their home outright or with a mortgage. That’s the good news, and it’s a big part of why downsizing conversations keep coming up: the house itself is often the largest asset a retiree owns, by a wide margin.
The number matters for more than bragging rights. It shapes how much cash you can realistically expect to walk away with after a sale, how much room you have to negotiate on a replacement home, and whether products like reverse mortgages or home equity lines are even worth considering as alternatives to selling outright. Before you decide what to do with your house, it helps to know what you’re actually sitting on.
Buyers have more leverage than sellers expect right now
The market has shifted since the frenzy of a few years ago. Listings have been climbing for more than two years straight, and in the latest data, median list prices were down slightly year over year while price cuts remained common on roughly a third of active listings nationally. If you’re picturing a bidding war like the one your neighbor had in 2021, adjust your expectations. Buyers are pickier, more price sensitive, and less willing to waive inspections just to win a deal.
That doesn’t mean you’ll lose money. Home values are still far above where they were before the pandemic, and you’re likely still selling into a healthy equity position. It means you should price realistically from the start instead of testing the market high and chasing it down over months, and you should expect to negotiate on repairs or closing costs more than sellers did a couple of years ago.
You don’t owe an agent 6 percent anymore
After a 2024 legal settlement reshaped how real estate commissions work, buyers now sign a written agreement with their own agent before touring homes, and that fee no longer gets automatically baked into what a seller offers on the open market. The result is that commissions have come down some. The national average total commission is now around 5.7 percent, split between the listing agent and the buyer’s agent, and it’s fully negotiable in every case.
On a $500,000 sale, shaving even one percentage point off that total keeps an extra $5,000 in your pocket. Ask any agent you’re considering what they charge and whether they’ll come down, especially if your home is likely to sell quickly or if you’re also planning to buy your next place through the same agent. A lot of agents will negotiate on a full-service listing before they’ll walk away from the business entirely.
The move itself has its own price tag
People budget for the house and forget the truck. A local move with a couple of movers typically runs $80 to $100 an hour, and a long-distance move of 1,000 miles or more commonly lands around $5,000, sometimes considerably more depending on how much you’re bringing and the time of year. Summer moves cost more than moves booked in the fall or winter.
Get quotes from at least three moving companies before you commit to anything, and get them in writing rather than as a verbal estimate over the phone. Ask specifically whether the quote is binding, since a “non-binding” estimate can legally increase on moving day. If you’re downsizing significantly, it’s often cheaper to sell or donate furniture that won’t fit the new place rather than pay by the pound or the hour to move it and then get rid of it anyway. Weigh the mover’s estimate against what you’d actually spend replacing anything that doesn’t survive the trip or doesn’t fit the new floor plan.
What’s inside the house can help pay for what’s outside of it
Before you call the movers, walk through what you’re not taking. Old sterling silver flatware sitting in a drawer, gold jewelry nobody wears anymore, coins someone in the family collected decades ago: all of it has real resale value right now, especially with precious metal prices where they are. A typical 32-piece sterling silver flatware set can bring $800 to $1,500 when sold for scrap, and that’s before you factor in anything with a recognizable maker’s mark or a collectible pattern.
The trick is knowing what you actually have. Silver-plated pieces marked “hotel silver” or stamped with a manufacturer’s plate mark aren’t worth much beyond sentimental value, while anything stamped 925 or marked sterling is worth the weight of the silver itself at the current market price. It’s worth a half hour with a magnet and a jeweler’s loupe before you box up the china cabinet, because what you find can cover a meaningful chunk of your moving costs.
A big profit on the sale can quietly raise your Medicare bill
Here’s a wrinkle almost nobody mentions. Profit that falls inside your $250,000 or $500,000 exclusion doesn’t count as income at all, so it has no effect on your Medicare premiums. But if your gain is large enough to spill over the exclusion, that taxable portion adds to your income for the year, and Medicare looks back two years when deciding what you pay.
For 2026, an individual with income over $109,000, or a couple over $218,000, pays more than the standard Part B premium under a surcharge called IRMAA, with the standard premium at $202.90 a month climbing as high as $689.90 for the highest earners. A one-time home sale gain large enough to cross one of those thresholds can raise your Medicare premium for an entire year, two years after the sale. If your gain is going to exceed the exclusion, it’s worth talking to a tax professional about timing the sale or spreading other income around it before you sign anything.
Leaving the house to your kids might be the better tax move
If you’re on the fence about selling versus staying put, there’s a piece of the tax code worth knowing about. When someone inherits a house rather than buying it, the property’s cost basis resets to its fair market value on the date of death. That means decades of appreciation that built up while you owned the home simply disappears for tax purposes, and your heirs could sell shortly after inheriting and owe little or nothing in capital gains.
This isn’t a reason to keep a house you don’t want or can’t maintain. But if your gain is well above the $500,000 exclusion and you’re weighing selling now against holding on, it’s a real factor in the decision, not just an emotional one. It’s also different from gifting the house to your kids while you’re alive, which passes along your original purchase price as the basis rather than resetting it, so the timing and method of the transfer both matter. Run the numbers with a tax professional or estate attorney before you decide selling now is automatically the smarter financial move.
The property tax break you built up might not follow you
If you’ve lived in your home for a long time, there’s a decent chance your property tax bill is well below what a buyer would pay on that same house today, thanks to assessment caps or homestead exemptions that limit annual increases. Move to a new house, even a smaller and cheaper one, and in most places your tax bill resets to current market value. That can mean paying more in property tax on a $350,000 condo than you were paying on a paid-off $600,000 house you’d owned for 25 years.
A handful of states let you carry some of that saved value with you. California allows homeowners 55 and older to transfer their old assessed value to a new home, and Florida lets homeowners move a portion of their Save Our Homes tax savings to a new property within the state. Rules and eligibility vary widely by state, so check with your county assessor before you assume your new tax bill will look anything like your old one.
Required withdrawals don’t pause while you pack boxes
If you have money in a traditional IRA or 401(k), federal law requires you to start taking required minimum distributions at age 73, and that clock keeps running no matter what else is happening in your life. A move, a home sale, or a hospital stay doesn’t buy you an extension, and missing a required distribution comes with a real penalty.
If your downsizing timeline overlaps with turning 73, or with a year when you’re already taking a large distribution, plan the sale and the withdrawal separately rather than assuming they’ll sort themselves out together. Missing a required withdrawal entirely comes with a penalty of up to 25 percent of the amount you should have taken, reduced to 10 percent if you correct the mistake quickly. Stacking a large RMD on top of a taxable home sale gain in the same calendar year is one of the easiest ways to accidentally land in a higher tax bracket, or trigger the Medicare premium surcharge mentioned above, without meaning to.
A 55 plus community isn’t automatically the cheaper option
Age-restricted communities often look appealing on paper: smaller homes, shared amenities, a built-in social scene. What doesn’t always show up in the sales brochure is the monthly fee. HOA dues in active adult communities typically run $230 to $280 a month nationally, and resort-style communities with golf courses or multiple pools can run $350 to $700 a month or more, on top of your mortgage, property tax, and insurance.
Those fees also tend to climb over time as reserves get rebuilt and insurance costs rise, particularly in coastal states. A $250 monthly fee that rises at a typical pace can turn into roughly $490 a month within a decade, which is easy to miss if you only budget for what the fee costs on move-in day. Before you sign anything, ask to see the community’s reserve fund and its history of fee increases over the past five years, not just the current monthly number. A low fee attached to an underfunded reserve almost always turns into a large special assessment down the road.
Assisted living and downsizing are different
People sometimes lump “downsizing” and “moving into assisted living” together, but they solve different problems. Downsizing is about lowering your housing costs and maintenance burden while you’re still fully independent. Assisted living is about getting help with daily activities like bathing, medication, and meals, and it costs considerably more: the national median runs $6,200 a month, or about $74,400 a year. Standard Medicare doesn’t cover any of it, which is why families end up paying out of pocket, through long-term care insurance, or eventually through Medicaid once savings are exhausted.
If you’re downsizing now while you’re healthy, it’s worth thinking one step ahead. Some smaller homes and condos are far easier to age into than others: single-story layouts, no-step entries, and walk-in showers save you a second disruptive move later. A move driven purely by cost savings today can end up costing you an extra move in five or ten years if it doesn’t account for how your needs might change.
Fixing up the house you’re in might cost less than leaving it
Selling isn’t the only way to lower your housing burden. If your current home mostly works for you but has a few real obstacles, accessibility renovations often cost far less than a move. A set of grab bars runs $100 to $350 installed, and a curbless walk-in shower typically runs $6,000 to $10,000. A full whole-home retrofit that touches several rooms, including wider doorways or a stair lift, can run $18,000 to $75,000, and a home elevator can push past $60,000, but even the higher end of that range is often cheaper than the combined cost of selling, moving, and buying again.
This is worth running the numbers on before you assume moving is the default answer. A single-story ranch with a bathroom that needs updating might make more financial sense to fix than to leave, especially if you love the neighborhood and the alternative is a smaller home somewhere you’d rather not be.
A reverse mortgage is a loan, not a windfall
If selling feels premature but you want access to some of your equity, a reverse mortgage lets homeowners 62 and older borrow against their home without monthly payments, with the loan repaid when you sell, move out, or pass away. The federal government raised the maximum amount that can be insured under this program to $1,249,125 for 2026, up from the year before.
It’s still a loan, and interest accrues on the balance the entire time you hold it, which means the amount owed grows even though you’re not making payments. You remain responsible for property taxes, homeowners insurance, and upkeep, and falling behind on those can put you at risk of foreclosure. It can be a reasonable tool for the right situation, but it shouldn’t be mistaken for free money, and it’s worth talking to a HUD-approved counselor, which is required before you can take one out, before you commit.
Most retirees don’t actually want to leave, and that’s a fine answer
Downsizing gets treated as the obviously smart choice, but most people don’t actually want to do it. A recent nationwide survey found that 75 percent of adults 50 and older would prefer to stay in their current home as they age, and 73 percent hoped to stay in their current community. There’s nothing wrong with that answer, even if it’s not the cheapest one on paper.
A house full of decades of memories, a guest room the grandkids use twice a year, a kitchen where holidays happen: none of that shows up on a balance sheet, and it doesn’t have to. If staying put is financially workable, even if it’s not the cheapest option available, that’s a legitimate choice, not a failure to plan properly. A middle path exists too. Renting out a room, taking in a boarder, or selling a second property while keeping the primary home can lower costs without giving up the house itself.
A cheaper state doesn’t always add up the way the spreadsheet says
Selling a paid-off home and relocating somewhere with no state income tax looks great on paper. It gets more complicated in practice. Moving away from decades-old friendships and a familiar community carries a real cost that doesn’t show up in a tax comparison. A 2025 study tied loneliness in seniors to a 31 percent higher risk of dementia, along with higher risk of Alzheimer’s and cognitive impairment specifically. Rebuilding a social circle from scratch in your late 60s or 70s takes real effort, and it doesn’t happen automatically just because the weather is nicer or the taxes are lower.
That’s not an argument against relocating. Plenty of people move somewhere new in retirement and thrive. It’s an argument for visiting for an extended stretch, ideally through an off season, before you commit, and for being honest with yourself about how much of your current life is tied to people rather than to the house itself.
Waiting for a crisis to force the decision costs you your choices
A lot of downsizing decisions get made in a hurry, after a fall, a diagnosis, or a spouse’s death, instead of ahead of time on your own terms. Moves made under pressure tend to go worse: less time to shop for the right buyer, less room to negotiate price, and less ability to compare neighborhoods, tax rates, and healthcare access before signing anything. Full-service moving costs alone can range from about $1,200 to $29,000 depending on distance and services, and a rushed timeline gives you far less room to shop that cost down.
Planning ahead doesn’t mean you have to move before you’re ready. It means having a realistic sense of what your home is worth, what a move would cost, and what your options are, so that if circumstances change quickly, you’re choosing from a plan instead of scrambling. The retirees who end up happiest with a downsizing decision are almost always the ones who made it before they had to.
