How To Use a Home Sale to Pay for Long-Term Senior Care

Covered in this guide:

• Deciding When to Sell Your Parent's Home
• Checklist for Selling Your Parent's Home
• What Documents Do You Need to Sell Your Parent's Home?
• Potential Impact of Selling Your Parent's Home: Effects on Taxes and Government Benefits
• What You Need to Do if Your Parent Has Dementia
• Addressing the Emotional Impacts of Selling a Home
• Raising Additional Funds for Long-Term Care
• Seeking Professional Assistance With a Home Sale

Updated: May 20, 2023 | Reviewed by: Deidre Sommerer, LPN, MS, CMC, CDP

Even the healthiest seniors experience some physical and mental changes as they age, making it more difficult to keep up with household chores and home maintenance. If one of your parents has been asking for help more often than usual, it may be time to consider long-term care, which gives seniors access to professional caregivers with extensive experience providing personal and medical care.

If your parent needs some type of long-term care, it's important to be prepared for how much it can cost. For seniors who can remain at home with a little help, home health services cost an average of $5,148 per month. Nursing home care costs the most, averaging $7,908 per month for a semiprivate room and $9,034 per month for a private room.

Many seniors don't have enough cash saved to cover these expenses, leading them to look for other ways to pay for long-term care. One option is to sell a primary residence and use the proceeds to pay for assisted living or nursing home services. If your parent agrees to sell their home, you should be aware of what the process entails and plan ahead to make sure everything goes smoothly.

This guide will help you understand what kind of paperwork you need to sell the home, determine how a home sale is likely to affect your parent's finances and find experienced professionals to advise you throughout the process. It also describes some of the alternative funding sources available to help you cover senior care costs.

Deciding When to Sell Your Parent's Home

Timing a home sale correctly can help you take advantage of market conditions, ensuring you net as much money as possible for your parent's house. However, market conditions aren't the only consideration. If your parent needs to move quickly due to declining health, you may have to put the house on the market during an economic downturn or accept an offer that's lower than you might have hoped to ensure your parent has enough funds to start paying for senior care.

Before you begin the home selling process, you may need to obtain a financial power of attorney to manage your parent’s affairs. Physical as well as cognitive decline can prevent someone from acting on their own behalf. It’s prudent to have power of attorney before any decline occurs to avoid conservatorship and/or legal guardianship.

Selling Early

One option is to sell the home before your parent needs some type of long-term care. Here are some reasons to consider selling early:

• The market is slow: If homes in your parent's neighborhood aren't selling quickly, it's a good idea to list the house now and leave plenty of time for someone to make an offer.
• Your parent has limited financial resources: Food and utilities are getting more expensive. Property taxes and home maintenance can also be a burden for a senior on a fixed income. Selling early may make sense if your parent's expenses are getting to be unmanageable.
• You have a transition plan in place: Some older adults move in with their adult children or younger siblings, instead of moving to senior living communities. If your parent has this option, you may want to sell their home now, instead of having them continue to pay property taxes and other expenses.

Waiting to Sell

There are some good reasons to hold off on putting the home on the market. Here's what you need to consider:

• You need to make repairs: Some homes can go on the market with a thorough cleaning and a little staging. If your parent's home needs significant repairs, however, you may need to hire someone to make the home safer for potential buyers. Waiting until your parent moves out can make it easier to get the home ready to sell.
• Your parent has dementia: For people with dementia, routines are important. If your parent has dementia, having potential buyers in and out of the house may disrupt their routine and lead to increased agitation. You can prevent this by waiting until they move out to put the house on the market.
• Your parent needs care immediately: It's difficult to meet with potential buyers while trying to get your parent settled at a nursing home or assisted living community. If they need care right now, you may want to wait until they've moved out to worry about listing the home.

Checklist for Selling Your Parent's Home

Even if your real estate agent takes the lead on scheduling walk-throughs and answering questions about the listing, you still need to gather paperwork, make sure you have the legal right to sell your parent's home and take care of other steps. It's a lot to manage, especially if you work full-time, care for children or have other responsibilities.

Use this checklist to make sure you complete every step in a timely manner.

What Documents Do You Need to Sell Your Parent's Home?

If it's been a while since you bought or sold a home, or if you've never been involved in a home sale, you may not be familiar with the documents you need to meet with potential buyers or complete the transaction. We put together a list of must-have documents, as well as a list of documents that are nice to have, in case you need to answer questions about the home or neighborhood.

Critical Documents

• Sales contract: The original sales contract lists all the terms and conditions applied to your parent's purchase of the home. It also shows that your parent is the legal owner and has the right to transfer the property to someone else.
• Appraisal report: An appraisal report indicates how much a home is worth based on a professional's opinion. Appraisals are based on market conditions and recent sales data for similar homes. For example, if your parent has a three-bedroom home measuring about 1,800 square feet, the appraiser will make an estimate of value based on other three-bedroom homes of similar sizes.
• Mortgage documents: If your parent hasn't paid off their mortgage yet, you'll need to contact the lender and get the payoff amount for the loan. The payoff amount is the amount of money you'll need to pay to satisfy the terms of the mortgage. You'll need the lender's name, the mortgage account number and the lender's telephone number to get this information.

Nice-to-Have Documents

• Insurance documents: Keep a copy of your parent's homeowners insurance policy on hand in case you need to make a claim while the home is on the market.
• Capital improvement receipts: A capital improvement prolongs the life of a property, adds to the value of a property or allows an owner to adapt their property for a new use. If your parent has made recent capital improvements, they may be able to ask for a higher price when they put the home on the market. Keep these receipts on hand in case you need to verify the date or cost of each improvement.
• Maintenance records: Regular maintenance keeps a home in good condition and may persuade buyers to make better offers. A potential buyer may also ask to see repair records if they're thinking about buying your parent's home. Have these records on hand during open houses and private walk-throughs.
• Utility information: You should be able to answer questions about utility usage and costs. For example, a potential buyer may ask if the home uses natural gas or propane for heating. Keep utility records on hand so that you can answer these questions as needed.
• HOA Records: A homeowners association (HOA) is a legal entity used to enforce rules within the boundaries of a residential development. If your parent's home is in an HOA, potential buyers may ask questions about these rules, so it's wise to have HOA records on hand.
• Home warranty records: If your parent bought their home within the last few years, they may have an active home warranty. Keep this information on hand in case a potential buyer asks if the home comes with any active warranty protection.

Potential Impact of Selling Your Parent's Home: Effects on Taxes and Government Benefits

If you're trying to raise funds for senior care, the purpose of selling your parent's home is to make as much of a profit as possible. Unfortunately, selling an expensive asset can have some unanticipated financial consequences, especially for seniors who may need Medicaid or other government benefits to cover some of the costs of care.

Tax Implications: Short-Term or Long-Term Financial Gains

A capital asset is almost anything of value that the owner uses for personal or investment purposes. In the United States, the Internal Revenue Code has rules regarding the amount of tax due on capital gains, or profits made on the sale of capital assets. When a U.S. taxpayer sells a home, they have a capital gain if there's money left over after subtracting the adjusted basis of the property from the sale price of the property.

Adjusted basis is the original value of the home plus or minus certain adjustments. If your parent did any significant remodeling projects after buying the home, for example, those projects likely increased the home's adjusted basis. If a home has an adjusted basis of $200,000 and sells for $300,000, the owner has a capital gain of $100,000.

Long-Term vs. Short-Term Gains

A capital gain is considered short-term when the owner held it for less than 1 year and long-term when the owner held it for more than 1 year. If you're selling your parent's home to pay for senior care, it's likely that they've owned their home for more than 1 year, so you need to be aware of the rules for long-term capital gains. The good news is that the IRS limits the long-term capital gains tax rate to 15% for home sales.

Reducing Your Parent's Tax Burden

Another piece of good news is that there are several ways to avoid paying 15% in long-term capital gains tax on the sale of a primary residence. If your parent has limited income, they may not have to pay anything at all. This applies to single filers with annual incomes below $40,400 and qualifying widowers, qualifying widows and married couples with joint returns who earn less than $80,800 per year.

Your parent may also be able to avoid paying the 15% long-term capital gains tax by meeting one of the following criteria:

• Primary residence exception: If your parent used their home as a primary residence for at least 2 of the last 5 years, they may be able to avoid paying capital gains tax. The exception applies as long as their capital gain doesn't exceed $250,000 (single) or $500,000 (married).
• Senior care exception: The IRS offers an additional exception for older adults who have to sell their homes to access some type of residential senior care. Instead of living in the home for at least 2 years out of 5, an older adult needs to live in their home for 1 year and a licensed senior living community for at least 1 year.

Impact on Eligibility for VA Pension Benefits

Some veterans qualify for monthly benefits distributed by the Department of Veterans Affairs. In 2022, the maximum annual pension rate or MAPR ranges from $14,753 to $24,610. To qualify for pension payments from the VA, a veteran must meet several requirements. One of those requirements is the net worth limit, which considers a veteran's income and assets.

The VA doesn't include a veteran's primary residence against this limit, so as long as your parent remains in their home, they don't have to worry that owning a residence will count against them for VA pension purposes. That may change as soon as you sell the home, as the current net worth limit is $138,489. When you sell the home, the VA counts the proceeds from the sale among your parent's assets. That means your parent won't be eligible for VA pension payments unless the amount they net isn't enough to push them over the limit when accounting for other income and assets.

VA Pension Look-Back Period

The VA also has a look-back period to make sure that applicants didn't sell their assets for below market value to try to stay under the net worth limit. If your parent is relying on their VA pension payments to cover some of their living expenses, be careful not to sell the home for less than its fair market value. If you do, and the proceeds from the sale would have put your parent over the net worth limit, they won't be able to qualify for VA pension benefits for up to 5 years.

Impact on Eligibility for Medicaid Coverage

Like the VA pension program, Medicaid has a look-back period to determine if applicants have transferred assets or sold assets for below their fair market value to try to meet the financial eligibility requirements. This look-back period covers almost all asset transfers, from home sales to donations of valuable items to charitable organizations. If your parent needs Medicaid to cover their health care expenses, be careful when setting an asking price for their home, selling items to raise money for senior care or donating items to charity as you prepare the house for sale.

Look-Back Penalties

If Medicaid determines that an applicant violated the rules regarding asset transfers during the look-back period, a penalty applies. This penalty renders the applicant ineligible for Medicaid nursing home benefits for an amount of time determined by two factors: the value of the assets that were transferred for less than their market value and the average cost of private nursing home care in the state. Some states use the average monthly cost of care, while others use the average daily cost of care.

Home Equity Considerations

One reason to sell your home before your parent moves to senior care is that every state except California has a home equity limit for seniors applying for Medicaid nursing home coverage. Most states have a limit of $636,000, but 11 states use the federal maximum of $955,000 and Wisconsin has a home equity limit of $750,000. Home equity refers to the difference between the value of a home and the balance remaining on the mortgage.

What You Need to Do if Your Parent Has Dementia

A dementia diagnosis can make the sales process a little more complicated. To sign documents transferring ownership of the home to another person, a homeowner must be sound of mind and capable of making their own decisions. If your parent has moderate to advanced dementia, they may lack the capacity to make decisions about their finances. Depending on the circumstances, you may need to obtain financial power of attorney or legal guardianship to manage their affairs.

Financial Power of Attorney

What Is It?

Financial power of attorney gives a designated person the right to make financial decisions for someone else. These decisions may include selling a home, pursuing a new investment strategy, cashing checks or opening new bank accounts.

Why Do You Need It?

If your parent has mild dementia or they're experiencing dementia symptoms and haven't been diagnosed yet, it's wise to obtain financial power of attorney as soon as you can. Obtaining POA rights now can help you avoid having to petition for guardianship if your parent's symptoms get worse before the home sells. If you wait until your parent has advanced dementia, they won't have the capacity to sign the POA documents.

How Do You Get It?

Although you're not required to have an attorney prepare the financial POA paperwork, it can be helpful to consult someone with experience in handling elder law issues. Working with a skilled attorney can help you avoid mistakes that can render the POA invalid.

Legal Guardianship

What Is It?

Guardianship allows someone appointed by the court to manage their loved one's affairs. If you obtain legal guardianship over your parent, you have broad authority to make decisions for them. For example, you can sell their property, decide where they live, consent to surgery and other medical procedures, file lawsuits on their behalf and perform a wide range of other functions.

Why Do You Need It?

If your parent can't consent to giving you financial power of attorney, you'll need to petition the court to grant you guardianship. Provided you're appointed as guardian, you'll be able to sell their home and handle their other financial affairs.

How Do You Get It?

You need to file a petition stating your parent has become incapacitated. The court may appoint a guardian ad litem, an individual assigned to protect the incapacitated individual's interests, an investigator or another third party to investigate the situation and report back to the judge. The judge uses any evidence presented to determine if guardianship is in your parent's best interests.

This process can take some time, as any person who's the subject of a guardianship petition has the right to due process. It takes time to provide a copy of the petition, appoint a guardian ad litem, gather evidence, examine witnesses and complete other steps.

Addressing the Emotional Impacts of Selling a Home

It's common for strong emotions to bubble to the surface when a home goes on the market. This is especially true for seniors who may have lived in the same home for 30, 40 or 50 years. The thought of parting with some of their possessions or leaving the place where they raised a family may cause your parent to appear distraught, upset, saddened, or angry while you're sorting, packing and preparing for them to move.

You can't change their feelings, as they are part of a grieving process for the loss of a home. However, there are a few things you can do to make the process a little easier:

• Start early: As soon as your parent decides to sell their home, ask them what they think they should sell, give away or transport to their senior living facility when they move. Try to honor their wishes, as it will help your parent feel like they have some control in a difficult emotional transition. The sooner you begin, the easier it is to get everything done.
• Label everything carefully: Disposing of a treasured possession by mistake can lead to hurt feelings. To prevent this from happening, label everything carefully. Write neatly on each box or use bright labels to make sure you know where everything goes once the house sells.
• Be positive: Although you shouldn't brush off your parent's concerns, it's helpful to be positive about the future. Remind your parent that selling the home is the best way to raise funds to ensure they can access the services they need to stay healthy over the next few years.
• Set aside time for sharing memories: If you stop and reminisce every time you pick up a new object, you won't be able to get the house ready in a timely fashion. Acknowledge your parent's feelings by setting aside time to share your favorite memories of time spent in the home.

Raising Additional Funds for Long-Term Care

If the home doesn't sell right away, you don't make as much money as expected or you can't sell your parent's home for some reason, there are a few other ways to pay for long-term care. Here are some of the best options.

Immediate Annuities

An immediate annuity is a type of investment that starts producing a return right away. This return is known as an income payment. If your parent wants to purchase an immediate annuity, they'll need to sign an annuity contract that spells out the terms of the investment. Annuities do have some fees, but they may be a good option if your parent has a large sum of money available to invest.

One of the main drawbacks of purchasing an immediate annuity is that your parent will have to invest a large sum of money at once. If they need that money back, they'll have to pay steep penalties to get out of the contract. 

Bridge Loans

A bridge loan allows a homeowner to borrow against the value of their home equity. Remember, equity is the difference between the home's value and the balance on the mortgage. If your parent owns their home free and clear, they may have hundreds of thousands of dollars in equity available, making a bridge loan a viable option.

In most cases, a borrower must have at least 20% equity to qualify for this type of loan. You should also be aware that a bridge loan is meant to be a short-term financing option. The lender won't give your parent 10 or 20 years to pay back the loan, so you should only consider bridge funding if you believe the home will sell before the balance of the loan comes due.

Government Benefits and Private Long-Term Care Insurance

Your parent may also be able to use one or more of the following to cover the cost of senior care.

Eligibility Requirements

Long-Term Care Insurance

Each insurance company has its own set of guidelines for determining if a senior is eligible for long-term care insurance. In many cases, an applicant needs to complete a medical screening or authorize the insurer to access their medical records for the purposes of determining eligibility.

Medicaid

Medicaid eligibility requirements vary by state, but each applicant must be a U.S. citizen or lawful immigrant. Applicants must also fall below the income and asset limits for the program.

VA Pension Benefits

Honorably discharged veterans may qualify for VA pension payments if they meet the active-duty service requirements and have a combination of annual income and assets that doesn't exceed the net worth limit. Additionally, at least one of the following must apply:

• The veteran has a total or partial disability.
• The veteran is aged 65 or older.
• The veteran must live in a nursing home due to having a total or partial disability.
• The veteran receives Social Security Disability or Supplemental Security Income benefits.

Reverse Mortgage for Seniors

HUD's FHA reverse mortgage for seniors is available to homeowners who are at least 62 years old, use the home as their primary residence and have a significant amount of home equity to borrow against. An applicant must also be able to cover the expenses for the property, including HOA fees and property taxes, and participate in a counseling session before the loan closes. Applicants who've defaulted on federal debts aren't eligible for this program.

Seeking Professional Assistance With a Home Sale

Although it's possible to sell a home without a real estate agent, doing so can cost you. A good agent can make home staging recommendations, help you determine an asking price and make other suggestions to help you sell the home quickly and for as much money as possible. Use the NAR member directory to find an agent in your area.

It's also a good idea to consult an elder law attorney before selling your parent's home, especially if you need to obtain financial power of attorney or petition the court for guardianship over your parent. An elder law attorney will help ensure you fully understand the laws of your state when managing and/or spending your parent’s assets, too. Use the National Academy of Elder Law Attorneys directory to find an experienced attorney who can help.

Expert Reviewer

Deidre Sommerer, LPN, MS, CMC, CDP

Deidre has worked in the healthcare field for over 35 years and specializes in Geriatrics. Deidre is a nurse who holds a certification from the National Academy of Certified Care Managers and is a Certified Dementia Practitioner. She has worked across all healthcare settings, with a concentration on the community and helping older and disabled adults age in place. She has worked on NIH grant-funded program evaluation projects and considers herself a life-long learner. Deidre is a valued team member at The Hartford HealthCare Center for Healthy Aging in Hartford, CT.