Retirement is a time to enjoy the fruits of your labor, and for many retirees, homeownership plays a significant role in financial security. However, when the decision to sell a home arises in retirement, one common question often emerges: Can selling your home affect your Social Security benefits? The answer to this depends largely on the type of Social Security benefits you are receiving. In this article, we will explore how selling your home could impact your Social Security benefits, providing clarity on how it works in different situations.
Understanding Social Security Benefits
Before diving into the specifics of how selling a home could impact Social Security, it’s important to understand the two main types of Social Security benefits retirees may receive: Social Security Retirement Benefits and Supplemental Security Income (SSI).
1. Social Security Retirement Benefits
These benefits are typically based on your work history and the amount you paid into the system throughout your career. After reaching the required age, which varies depending on when you were born, you become eligible to begin receiving Social Security retirement benefits.
These benefits are not based on need. Instead, they are calculated based on the number of years you worked and the amount of income you reported while working. The amount of Social Security retirement benefits you receive does not change based on your income or the assets you own. So, whether you sell your home or not, your Social Security retirement payments will remain the same.
2. Supplemental Security Income (SSI)
Unlike Social Security retirement benefits, SSI is a needs-based program for low-income individuals who are aged 65 or older, blind, or disabled. To qualify for SSI, individuals must meet strict income and asset limits, which are regularly adjusted for inflation.
SSI is where things can get tricky when it comes to selling your home. The program has specific guidelines for how assets are counted, and the sale of a home can impact your eligibility for benefits.
Selling Your Home and Social Security Retirement Benefits
If you are receiving Social Security retirement benefits, selling your home will not impact your eligibility or the amount of your monthly payment. These benefits are not affected by the value of your home or any assets you sell. In short, the decision to sell your home will not cause you to lose your Social Security retirement benefits.
The Social Security Administration (SSA) does not consider your primary residence when determining eligibility for retirement benefits. Since your retirement benefits are not means-tested, your assets, including the sale of your home, do not factor into your benefits calculation.
In other words, if you are living on Social Security retirement benefits, you can sell your home without worrying about losing those benefits. However, it is important to keep in mind that proceeds from the sale of your home could still affect other financial aspects, such as taxable income or investment decisions.
Selling Your Home and Supplemental Security Income (SSI)
The situation is different for those receiving SSI benefits. Since SSI is a needs-based program, the Social Security Administration closely monitors your income and resources. While the value of your primary home is excluded from consideration, any proceeds from the sale of your home are considered “countable resources.”
According to the SSA, you can sell your home, but the proceeds from the sale could disqualify you from receiving SSI if the total value of your resources exceeds the eligibility limit. For an individual, the asset limit is $2,000, and for a couple, it is $3,000.
For instance, if you sell your home and the sale generates a significant amount of money, it could push your total assets above these limits, potentially leading to a temporary loss of SSI benefits. However, the SSA does allow some flexibility in this situation.
What Happens If You Buy Another Home?
The SSA understands that most people need to live in a home, so they provide an exclusion for funds used to purchase a new primary residence. If you sell your home and use the proceeds to buy another home within three months, the funds used for the purchase will not count toward your resource limit. This means you can maintain your SSI benefits as long as you are actively in the process of purchasing or have purchased a new home within the three-month window.
However, if you do not buy a new home within this time frame, the sale proceeds will be counted as assets and may cause you to exceed the resource limit, resulting in a reduction or loss of your SSI benefits.
Potential Tax Implications of Selling Your Home
Even if selling your home does not affect your Social Security benefits, the sale could still have tax implications. While your primary residence is generally excluded from capital gains taxes up to a certain amount (currently $250,000 for individuals and $500,000 for married couples), the proceeds from selling a second home or investment property could be subject to capital gains tax.
Furthermore, if you are earning rental income from investment properties, that income could increase your overall earnings, potentially making a larger portion of your Social Security benefits taxable. If your combined income exceeds certain thresholds, up to 85% of your Social Security benefits may be subject to federal income tax.
Final Thoughts
For most retirees, selling a home does not impact Social Security retirement benefits. However, if you are receiving SSI, selling your home and receiving significant proceeds may affect your eligibility. To avoid any issues, consider purchasing a new home within three months or consulting a financial advisor to ensure that your assets remain within the limits for SSI eligibility.
