As you move through retirement—or approach it—one of the biggest financial decisions many households face is what to do with their home. For most Americans, a home is not just where they live; it is often their largest asset, a source of emotional comfort, and a potential source of retirement income. Turning that asset into cash, income, or long-term security requires thoughtful planning.
Before you decide whether to stay put, downsize, rent, or sell, it is important to understand the financial, tax, and lifestyle implications of each choice. Below are key considerations for California retirees in 2026.
1. Staying in Your Home: Comfort vs. Cost
For many retirees, “aging in place” offers familiarity and stability. Remaining in a long-time home and community can support emotional well-being and continuity. However, it is also important to evaluate whether your home supports your long-term financial and health needs. Consider:
Ongoing expenses such as property taxes, insurance, utilities, maintenance, and potential accessibility modifications.
Opportunity cost, as equity tied up in your home could otherwise support retirement income, healthcare, or long-term care needs.
Availability of credit: Remember that reverse mortgages and lines of credit are generally not available unless you continue to actively live in and maintain your home.
2. Downsizing: Freeing Up Equity
Downsizing—selling your current home and purchasing a smaller or less expensive one—can unlock equity while reducing ongoing costs. Benefits may include:
Lower housing expenses
Reduced maintenance responsibilities
Additional investable assets to support income, travel, or future care
Under Proposition 19, California homeowners age 55 or older may transfer their property tax base to a replacement primary residence anywhere in the state (up to three times), potentially preserving a lower property tax bill even after a move. The rules are obviously more complex, and relate heavily to values of the original home vs. the new home, so carefully review the Prop 19 provisions.
3. Selling and Reinvesting: Tax Considerations
Selling your primary residence can unlock a large amount of cash, but it’s important to understand the tax rules that govern how much you get to keep:
Federal capital gains exclusion: When you sell your primary residence, you may qualify to exclude up to $250,000 of capital gain from taxable income if you file single, or up to $500,000 if married filing jointly, provided you have owned and lived in the home for at least 2 of the last 5 years. This is commonly confused with rental properties, so don’t assume anything unless you’ve spoken with your tax or financial professional.
California specifics: California generally conforms to this federal exclusion for primary home sales. However, if your gain is larger than these exclusion amounts, the excess gain will be taxed as ordinary income at state tax rates.
Timing matters: A large gain in a single year can affect income-based items such as Medicare premiums, capital gains tax rates, premium tax credits on health insurance, and many other tax and benefit-related matters. We discuss these issues with clients on an almost weekly basis, including decisions around timing, basis step-ups upon inheritance, and related planning considerations. We strongly encourage readers not to begin the home sale process until they have spoken with a qualified tax or financial professional.
4. Renting Out Your Home: Income vs. Management
Some retirees convert their home to a rental to generate ongoing income while retaining ownership.
Advantages include:
Monthly cash flow
Potential long-term appreciation
Challenges include:
Property maintenance, tenant management, vacancies, and compliance with California landlord-tenant laws
Rental income being taxed as ordinary income
Understanding whether or not the home is profitable as a rental
For retirees who prefer a more hands-off approach, working with a professional property management company can help handle tenant screening, maintenance coordination, rent collection, and regulatory compliance, reducing the day-to-day burden of being a landlord. We generally strongly recommend this approach despite the costs.
5. Reverse Mortgages: A Tool, Not a Default
Reverse mortgages allow homeowners to access equity without selling, with repayment deferred until the home is sold or vacated.
Points to consider:
Whether or not you intend to stay in the home long-term.
Fees and interest accumulate over time
Home equity available to heirs is reduced
Best evaluated as part of a comprehensive income strategy
Reverse mortgages are not for everyone, but they may have a place in a broader strategy depending on your specific situation.
6. How Your Decision Affects Medicare and Social Security
Major financial moves, such as selling a highly appreciated home, can affect other parts of your financial picture—especially in 2026.
Medicare IRMAA (Income-Related Monthly Adjustment Amount): If a home sale generates a large capital gain and triggers a higher income year, it could affect your Medicare Part B and Part D premiums through IRMAA surcharges, which are based on your income from two years prior.
Social Security taxation: A large one-time gain can also cause more of your Social Security benefits to become taxable. Depending on your total income, up to 85% of your benefits may be subject to federal income tax in the year of sale.
Careful planning with your financial advisor around the timing of sales, capital gains recognition, and income management strategies can help minimize this risk.
7. Estate and Legacy Considerations
What you decide to do with your home also affects your heirs and legacy plan. Under Proposition 19, inheritance of property can trigger reassessment of property taxes unless certain conditions are met—such as the heir making the inherited home their primary residence within one year. This can significantly affect the property tax burden on heirs, especially in high-value markets like California.
Another consideration before selling is potential capital gains. Remember that capital gains are usually eliminated for inherited properties as long as the original owner’s estate is below the estate tax exclusion limit.
Consulting with your financial planner and an estate planning attorney early helps ensure your home decision aligns with your legacy goals.
Making the Decision That’s Right for You
There’s no universal answer to what you should do with your home in retirement. The right choice depends on your financial picture, health and mobility needs, lifestyle preferences, family dynamics, and long-term goals. A few guiding questions to ask yourself:
Do I want stability and familiarity, or more flexibility and liquidity?
How much cash do I need now versus later?
What are the ongoing costs of the home compared to potential income from selling or renting?
How will this decision affect my taxes, estate plan, and healthcare coverage?
Working with a Certified Financial Planner and tax professional can help you evaluate these scenarios side-by-side and choose a path that supports your retirement well-being.
Ready to Evaluate Your Home Strategy?
At Aspire Planning Associates, we help clients assess the financial, tax, and estate planning implications of real estate decisions in retirement. Whether you are considering staying put, downsizing, selling, or converting property into income, our team can help you model the outcomes and align your housing decisions with your broader financial plan.
To discuss your real estate decisions in the context of your broader financial plan, call (925) 938-2023 to schedule a consultation with an Aspire Planning Associates advisor.
This article is for informational purposes only and should not be considered personalized financial, tax, or legal advice. Individual circumstances vary, and readers are encouraged to consult with qualified professionals regarding their specific situation.
