Can I Sell My House and Still Live in It?

Selling a home while continuing to reside in it involves specific legal and financial arrangements. These allow individuals to access home equity or address estate planning without immediately relocating. Such arrangements transfer property ownership while establishing the original owner’s right to maintain occupancy. Understanding these structures requires considering their mechanics and financial implications.

Sale-Leaseback Arrangements

A sale-leaseback involves a homeowner selling their property to an investor and immediately leasing it back, becoming a tenant. This establishes two roles: the original homeowner becomes a tenant, and the buyer becomes the landlord. This structure allows the seller to access home capital while retaining occupancy.

Before a sale-leaseback, homeowners should gather property and market information. This includes a professional appraisal for market value and researching comparable rental rates. These benchmarks inform negotiations for sale price and lease terms. Documentation includes the property deed; financial statements may be shared for buyer assessment of seller stability.

The process begins with finding an interested buyer-investor. Negotiations encompass the sale price and lease terms, including monthly rent, duration, and responsibilities for maintenance, taxes, and insurance. After terms are agreed, two legal documents are drafted: a Purchase and Sale Agreement for property transfer, and a Lease Agreement outlining tenancy.

Closing involves transferring the property deed to the new owner, and the seller receives proceeds. Unlike traditional financing, a sale-leaseback can provide the seller with up to 100% of the property’s market value. Following closing, the seller becomes a tenant, making regular rental payments under the lease agreement. Many arrangements utilize a “triple net lease,” where the tenant assumes responsibility for property taxes, insurance, and maintenance costs in addition to rent.

For the seller, tax implications involve capital gains from the property sale. If the property was their primary residence, they may qualify for the Section 121 exclusion, allowing single filers to exclude up to $250,000 of gain and married couples up to $500,000, provided they owned and used the home for at least two of the five years preceding the sale. Rental payments by the seller-turned-tenant are not deductible as a personal expense. If the property was previously used for business or rental purposes, depreciation recapture may apply upon sale, taxing a portion of the gain at ordinary income rates.

Life Estate Agreements

A life estate agreement is a legal arrangement where a property owner transfers ownership to a “remainderman” but retains the right to live in and use the property for their lifetime. The original owner is the “life tenant.” This structure is often used in estate planning to transfer property directly to designated beneficiaries upon the life tenant’s death, bypassing probate.

To establish a life estate, the property owner must gather information including the property’s legal description, current deed details, and identification of the remainderman. Existing mortgages or liens should be acknowledged, as these affect the transfer. Consulting legal counsel helps ensure the agreement aligns with the owner’s objectives and complies with legal requirements.

Creating a life estate involves drafting a new deed, known as a Life Estate Deed. This document specifies the life tenant’s right to occupy and use the property for their lifetime and names the remainderman who receives full ownership upon the life tenant’s death. Certain types, like the “Lady Bird Deed” or “Enhanced Life Estate Deed,” may offer the life tenant more control, such as selling or mortgaging the property without the remainderman’s consent. Once drafted, the deed must be signed by the grantor, often notarized and witnessed, and then recorded with the county clerk’s office.

During the life tenant’s occupancy, they are responsible for ongoing property expenses. This includes property taxes, property insurance, and maintenance and repairs. These financial responsibilities ensure the property is preserved for the remainderman.

Tax implications for a life estate involve gift tax considerations. Transferring the remainder interest to the remainderman is considered a gift. For 2025, individuals can gift up to $19,000 per recipient annually without gift tax reporting. If the gifted remainder interest exceeds this annual exclusion, the donor must file IRS Form 709, a gift tax return, which may reduce their lifetime gift tax exemption.

Capital gains treatment upon property sale depends on when the sale occurs. If sold during the life tenant’s lifetime, there is no step-up in basis, and any capital gain is apportioned between the life tenant and remainderman based on their actuarial interests. If the life tenant resided in the property as their primary residence, they may still be eligible for the Section 121 capital gains exclusion on their portion of the gain.

If the property transfers to the remainderman upon the life tenant’s death, the remainderman receives a “step-up in basis.” This adjusts the property’s cost basis for tax purposes to its fair market value at the time of the life tenant’s death. This can reduce or eliminate capital gains tax if the remainderman later sells the property.