Downsizing

Downsizing usually means selling a larger house and moving to a smaller one: a ranch instead of a two-story, a condo instead of a yard, two bedrooms instead of four. The pitch is familiar. Less to clean, less to maintain, lower utility bills, and a pile of freed-up home equity that can pad retirement savings.

The reality is that most older Americans never do it. In AARP's 2024 Home and Community Preferences Survey, 75 percent of adults 50 and older said they want to remain in their current home as they age, though 44 percent also expect to move at some point, most often pushed by housing costs ¹. The gap between wanting to stay and expecting to move is where the downsizing decision actually lives, and it is as much about arithmetic and emotion as square footage.

This article walks through both: why people downsize and why many do not, what a sale really costs after the 2024 changes to real estate commissions, how the capital gains exclusion works on a long-held home, the property tax rules that can follow you or bite you, and the practical work of emptying a house you have filled for decades.

Why people downsize, and why many never do#

The reasons to move are usually some mix of money, upkeep, and layout. A large house carries taxes, insurance, heating and cooling, and a repair list that grows as the owner's appetite for ladders shrinks. Stairs and second-floor bathrooms become obstacles. Some people move closer to children or grandchildren, or trade a cold climate for a warm one; a smaller share moves into a retirement community or, eventually, assisted living.

The reasons people stay are just as concrete. The house holds forty years of memories, and leaving it can feel like a loss rather than a simplification. Transaction costs eat a chunk of the equity that made the move look smart. In many markets there is nothing cheaper to buy: smaller homes and single-story houses are scarce and sought after, new construction skews large, and an owner with a paid-off house or a 3 percent mortgage gives up a lot by trading into today's prices and rates. Tax rules can add their own penalty, from capital gains on a highly appreciated home to the loss of a low, locked-in property assessment. And then there is the stuff: decades of furniture, tools, and boxes that someone has to sort. None of these are irrational; they are why a clear-eyed cost comparison, not a rule of thumb, should drive the choice. An honest budget for both scenarios, covered in budgeting in retirement, is the place to start.

What selling actually costs#

Commissions deserve a closer look because the rules changed. Under a nationwide settlement involving the National Association of Realtors, since August 2024 listings can no longer advertise a buyer's-agent commission on the multiple listing service, buyers must sign written agreements with their agents, and every fee is explicitly negotiable. What has not changed much is the price: Redfin found the average buyer's-agent commission was 2.42 percent of the sale price in the third quarter of 2025, slightly higher than a year earlier, with lower-priced homes paying higher percentages ². Sellers can negotiate the listing side, decline to cover the buyer's side, or use discount and flat-fee services, but on a $600,000 sale, a conventional 5 percent total commission is still $30,000. Add the other line items and it is common for 7 to 10 percent of the sale price to disappear before any equity is freed, which is why downsizing from a $500,000 house to a $420,000 condo often liberates far less cash than the sticker prices suggest. The moving bill gets no federal tax break: the moving expense deduction is limited to active-duty members of the Armed Forces moving on military orders and, for moves in 2026 or later, employees and new appointees of the intelligence community ¹².

Sources for this section: [2] [3] [4] [12]

Capital gains: the Section 121 exclusion#

When you sell your main home, Section 121 of the tax code lets you exclude up to $250,000 of gain from income, or $500,000 for a married couple filing jointly, provided you owned and lived in the house for at least two of the five years before the sale and have not used the exclusion in the past two years ⁵. A surviving spouse who sells within two years of a spouse's death can generally still use the full $500,000 amount, and a partial exclusion is available when a sale is forced early by health, work, or certain unforeseen events ⁵.

Those ceilings have not changed since 1997, and long-held homes in expensive markets now blow past them regularly. Nearly 8 percent of U.S. home sales in 2023 produced gains above $500,000, up from about 3 percent in 2019 ⁶. A Cotality analysis published in 2026 found that about one in 12 sellers pays capital gains tax on the profit from selling a primary residence, seven percentage points more than in the early 2010s, and that a quarter of homes sold in California produce gains beyond the $500,000 limit ⁹.

The gain is the sale price minus your basis, which is what you paid plus the cost of improvements over the years (a new roof, an addition, a remodeled kitchen, but not repairs). Records of those improvements directly reduce the taxable gain, which is a good argument for digging out old receipts before listing. A spouse's death changes the basis itself: when a jointly owned home passes to a surviving spouse, the half the deceased spouse owned resets to its fair market value on the date of death, and in community property states such as California and Texas the entire home gets that step-up, so appreciation from before the death may escape tax entirely ⁵. Gain above the exclusion is taxed at long-term capital gains rates, and it counts as investment income for the 3.8 percent net investment income tax once modified adjusted gross income passes $200,000, or $250,000 for joint filers ¹⁰. A large one-time gain can also trigger higher Medicare premiums two years later through the income-related surcharge described in taxes in retirement.

Note: An older rule allowing a one-time exclusion for sellers over 55 was repealed in the 1990s. The current exclusion has no age requirement and can be used repeatedly, once every two years. Anyone advising you to wait for a special senior break is working from a law that no longer exists.

Sources for this section: [5] [6] [9] [10]

Property taxes: the move can raise or lower them#

Property tax consequences depend heavily on the state, and they cut both ways. In California, Proposition 19 lets homeowners who are 55 or older (or severely disabled) sell a primary residence and transfer its low assessed value to a replacement home anywhere in the state, up to three times, if the new home is bought within two years; buying a more expensive home adds the price difference to the transferred base ⁷. Before 2021, a longtime owner leaving a $2 million house with a $4,000 tax bill faced full reassessment almost anywhere they moved; portability removed one of the biggest financial reasons Californians refused to downsize.

Texas freezes school district taxes for homeowners at 65 through a tax ceiling ⁸, and a homeowner who moves can transfer the percentage of school taxes paid under the old ceiling to a new Texas homestead ¹¹. Many other states offer senior freezes, homestead exemptions, or deferral programs, each with its own age and income rules, and most of them do not follow you across state lines. A move that lowers your mortgage can still raise your total housing bill if it forfeits a frozen assessment, so the county assessor's office in both locations is worth a call before committing.

Sources for this section: [7] [8] [11]

Emptying the house#

For many people the objects are harder than the economics. A useful frame comes from Sweden: dostadning, or Swedish death cleaning, popularized by Margareta Magnusson's book The Gentle Art of Swedish Death Cleaning. The method is to thin your possessions gradually, while you are alive and healthy, so that your family never has to do it for you. Magnusson's practical advice holds up: start with storage areas and closets, not photographs and letters, because sentimental items pull you into the past and stall the project; give things away to people who actually want them while you can enjoy the giving. Done over months or years, the process doubles as a gift to whoever handles your estate later.

Adult children usually want far less of the furniture and china than parents hope, so plans built on "the kids will take it" tend to collapse into donation runs. When the sorting is overwhelming or family is far away, senior move managers specialize in exactly this: sorting, floor-planning the new home, running the sale or donation of what remains, packing, and unpacking on the other end. The National Association of Senior Move Managers (NASMM) requires member firms to carry liability insurance, follow a code of ethics, and provide written estimates; hourly rates of $40 to $80 are typical, with full-service moves commonly totaling $1,500 to $5,000 and more for large households ⁴.

Sources for this section: [4]

Renting instead of buying the smaller place#

Downsizers default to buying, but renting deserves a fair hearing. Renting converts the entire sale proceeds into investable assets, eliminates property taxes, insurance surprises, and maintenance, and makes the next move (closer to family, into a continuing care retirement community, or abroad, as covered in retiring abroad) a lease decision rather than another sale. The costs are real too: rent rises over time with no cap, you lose the inflation hedge and the heir-friendly step-up in basis that owned real estate provides, and no landlord will let you install every feature on a home modifications list.

Renting also works as a trial. Spending a year in the smaller town, the 55-plus community, or the walkable downtown before buying there is cheap insurance against an expensive second move. Owners who want to stay put but need income have other levers, including a reverse mortgage, which solves a cash problem without solving a stairs problem.

Timing the move#

The strongest pattern in downsizing stories is that the move happens years later than the mover intended, and often after a fall, a hospitalization, or a spouse's death forces it. A crisis move is the worst version: the house sells under time pressure, the sorting becomes a dumpster, and the destination is whatever has a vacancy rather than what fits. Moving while healthy means you choose the place, qualify for communities that require residents to arrive in good health, and have the stamina for the work. People who plan to stay in the big house indefinitely still benefit from acting early on the pieces that make any later transition easier: thinning possessions, gathering records, and making the current home safer for aging in place in the meantime.

RetiredWiki. (2026, July 18). Downsizing. https://retiredwiki.com/article/downsizing