The Million-Dollar Mistake: When Selling Mom’s House Creates an Avoidable Tax Disaster
Imagine this very common scenario:
An elderly parent—let’s call her Margaret—is 97 years old. She has modest savings, a fixed income, and increasing care needs. Her primary wealth is tied up in one asset: the home she bought decades ago for a fraction of its current value.
Today, that home is worth $4.5 million.
Margaret’s children are worried. They’re told care will be expensive. They don’t want her to run out of money. A real estate agent suggests a “simple” solution:
“Let’s sell the house, free up the cash, and make sure Mom is taken care of.”
The home is sold. After paying off costs of sale and a large capital gains tax bill—approaching $1 million—the family is left wondering:
Did we really need to do it this way?
In many cases, the answer is no.
The Core Problem: Acting Before Understanding
For highly appreciated assets like long-held real estate, timing and method of sale matter tremendously.
When an asset is sold during the owner’s lifetime, any built-in gain (the difference between the original purchase price plus improvements and the current value) is generally subject to capital gains tax.
When that same asset is held until death, it often receives a step-up in basis: the tax basis resets to the date-of-death value. In practical terms, that can reduce or even eliminate capital gains for the heirs if they later sell.
In Margaret’s case, the family:
Turned an illiquid but extremely valuable asset into cash
Triggered a very large capital gains tax liability
Lost the benefit of a step-up in basis that likely would have applied at her death
All of this in the name of “keeping things simple” and “making sure Mom is taken care of.”
The intention was good. The execution was costly.
What Went Wrong?
Several missteps often converge in situations like this:
1. No Clear Goal-Setting
The family knew they needed money for care, but no one stopped to clearly define:
How much liquidity was actually needed, and over what timeframe
Whether the goal was to maximize Mom’s comfort, preserve family wealth, or both
Whether there were non-sale options that could meet the same needs
“Sell the house” became the default answer without a real planning conversation.
2. Advice from the Wrong People
Real estate agents, lenders, and others involved in transactions play important roles—but they are not tax advisors or estate planning attorneys.
Their incentives are also different. In a commission-based environment, the structure is simple: if the client sells, the agent gets paid. There is no built-in reward for saying, “Slow down, talk to your CPA and attorney first,” even when that is exactly what should happen.
Good agents do raise those questions. Many don’t.
3. No Coordination Among Professionals
In an ideal world, before a major decision like selling a long-held residence for a 97-year-old, the following professionals are in the loop:
Estate planning attorney
CPA or tax advisor
Financial advisor
Possibly a geriatric care manager or senior care specialist
Instead, Margaret’s family made a life-changing financial decision with partial information and no coordinated advice.
The Estate Planning “Cousin” to This Mistake
This same pattern shows up in another common move:
Adding a child to the title of a parent’s home “to avoid probate.”
It sounds simple and smart. In reality, it can:
Undermine or eliminate step-up in basis on part of the property
Expose the home to the child’s creditors, lawsuits, and divorce
Create gift tax and property tax issues
Cause loss of control and family conflict
Still result in probate or litigation anyway
Again, the problem is action first, advice later—if ever.
What Could They Have Done Instead?
Every situation is unique, but in a case like Margaret’s, a thoughtful planning process would have explored options such as:
1. Using the Equity Without Selling
If the goal is to fund care, the home’s equity can sometimes be tapped without triggering immediate capital gains, for example:
Reverse mortgage or other appropriate financing tools
Traditional home equity lines of credit (where feasible)
Short-term bridge financing in connection with other planning
These options carry their own risks and costs and are not right for everyone, but they at least deserve to be weighed against an immediate sale.
2. Creating Cash Flow
Instead of selling, the family might:
Rent the property to generate monthly income
Downsize or move only if it aligns with Margaret’s actual preferences and needs
This preserves the underlying asset (and potential step-up in basis) while still addressing cash flow needs.
3. Considering Timing and Tax Consequences
If a sale truly is necessary—for example, because the home is no longer suitable, or the family’s broader financial picture demands it—it should be done with a clear tax analysis:
What will the capital gains tax be if we sell now?
What would the picture look like if we held the asset until death?
Are there planning techniques or strategies that could mitigate the tax impact?
No single answer fits every family, but informed tradeoffs are always better than blind ones.
A Better Framework for Big Decisions
When facing decisions about a major appreciated asset in an elderly person’s estate, a more protective process looks like this:
Clarify goals.
Care, dignity, stability, legacy—what are the priorities?Gather facts.
Current value, tax basis, income, expenses, health status, family dynamics.Assemble the right team.
Estate planning attorney, CPA, financial advisor, and, when appropriate, senior care professionals.Explore multiple options.
Sell, hold, borrow, rent, restructure title, or some combination—each with pros and cons.Only then, choose a path.
With eyes open to both the benefits and costs, including taxes and lost opportunities.
The Real Cost of “Free” Advice
Families in Margaret’s situation often resist paying for advice up front. A consultation with an attorney or CPA feels like “another expense” at a stressful time.
But when “saving” a few hundred or a few thousand dollars leads to a six- or seven-figure tax bill that could have been reduced or avoided, the math becomes painfully clear.
The cost of proper guidance is almost always a fraction of the cost of cleaning up a preventable mistake.
If you or your family are contemplating:
Selling an elderly parent’s highly appreciated home
Adding a child to title to “keep things simple”
Transferring major assets late in life “just to avoid probate”
Pause. Get advice before you take action. Talk to professionals whose job is to protect you, not those whose income depends on whether you say “yes” to a transaction.