Special Asset - Residence
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With the residence asset option you can model clients' current existing residence values, their sale, and replacement in a single section. Residence mortgages are modeled in the Liabilities section.
Residence Sale
Use these inputs to model the basic sale information for a property. If the client does not intend to sell the property leave the Age at Sale field 0. When a property is sold any mortgages tied to the property in the Liabilities section will be paid off automatically.
[Individual's] Age at Sale - Enter the age of the indicated individual when they intend to sell the property.
Sales Cost (% of Sales Price) - When the residence is sold an administrative expense for the sale will be calculated using this rate and the future value of the residence.
Primary Residence - If the client(s) can apply the primary residence exclusion when sold check this box. This will reduce the taxable income from the sale of the residence.
Calculating taxable income from the residence sale:
Capital Gains = Future Value - Cost Basis - Primary Residence Exclusion (when eligible)
Residence Replacement
When a residence is sold and being replaced use these fields to model the replacement information.
Cost to Replace Home (Today's Dollars) - Enter the expected value of the replacement home in today's dollars.
New Mortgage (% of Cost to Finance) - Enter the percentage of the value that the clients will apply to the mortgage. For a 20% down payment you would enter 80% in this field.
Interest Rate on New Mortgage - The expected interest rate on the replacement home is entered here.
Number of Years on the New Mortgage - Use this field to enter the number of years the clients intend to pay off the mortgage.
TIP: You can also model the purchase of a future home by doing the following:
Create a residence and leave the value at $0 and a desired appreciation rate on the future home
In the Age at Sale field enter the date of the future home purchase (in this case you can look at this field as effectively the "Age at Purchase")
Use the replacement fields to model the value (in today's dollars), and mortgage information