Capital Gains modeling
Planner does not account for Capital Gains or Capital Gains tax on real estate sales. When modeling real estate sales in the planner, you'll need to determine whether capital gains will apply.
If no capital gain is anticipated, then model the sale through Home & Real Estate > Future Changes to Primary Residence or Future Real Estate Sales (whichever is applicable). The planner assumes no capital gains with this method.
If a capital gain is anticipated, you have two options.
Option 1 Add One-Time Expense
Future Real Estate Sales will allow you to model the loss of ownership in the property and the transfer of proceeds to an account you choose, but it won't model the capital gain. Separately inputting a one-time expense enables you to model the expenditure of dollars from an account you choose, for the capital gain tax owed, but the planner won't know to count that one-time expense as a capital gain. Therefore, the planner's tax projections will be inaccurate for that year.
Option 2 Workaround using Accounts and Assets
If you want to improve the tax accuracy within the planner (e.g. if you want awareness of tax implications that are based on or include capital gains), then you can utilize the following method to model the sale of the property and the associated capital gain. This method essentially models the property as an account, which fools the planner into also calculating a capital gain.
Step 1
Change the status of your primary residence to Rent and enter $0 for rent.
Make sure to enter a zip code, as this will drive your state income taxation.
Step 2
Head over to My Plan > Accounts and Assets and create an after-tax account
Select the Capital Gains tax treatment
Give the account a descriptive name, "Primary Residence 1 Main St" for example
Add the fair market value of your home as the current balance of the account
Set the rates of return to your housing appreciation rate
Set the Turnover Rate to 0%
Set the Dividend Yield to 0%
Set the Cost Basis of the account to:
Your cost basis in the property + if you have any previous or planned capital improvements that are eligible for increased cost basis + estimated costs to sell + IRS Sec 121 Exclusion (if applicable)
Exclude the account from your withdrawal strategy
Step 3 Simulate the sale of the real estate
Head over to My Plan > Money Flows and Add a Transfer
from the "Primary Residence 1 Main St" account
to an after tax account
for the balance of the account (property) in the year of sale. This can be seen by viewing Insights > Savings > Savings Balances
at the age/date of your choice
Notes Something descriptive of your choice (e.g. - Sale of 1 Main St.)
Head over to Insights > Taxes > Gross Taxable Income by Source and validate the Capital Gains
Under Home & Real Estate > Primary Residence or Other Owned Real Estate, delete the corresponding property. If the Primary Residence was sold, please update the home living arrangement as appropriate, including the zip code because this drives the planner's future assumptions on state taxation.
Under Home & Real Estate > Future Changes to Primary Residence or Future Real Estate Sales, delete the corresponding transaction (if previously entered).