Take your home equity and run
Gina Grzelka and her husband sold a two-bedroom 1,350 square-foot house in the suburbs of Chicago and now live in a four-bedroom 3,000 square-foot house in Baldwinsville, N.Y. The price of their spacious new home was half the selling price of their Chicago area home.
In Sanford, Fla., Jan Zeiger and her husband are in
the process of selling their home for $260,000. They plan to move
to Columbia, S.C., where they hope to find a bigger, newer home
for less than $175,000.
Laura Markel sold her 700 square-foot condo in San Clemente,
Calif., for $300,000 after paying only $105,000 for it four years
earlier. With $180,000 of her equity, she purchased a 1,700 square-foot,
three-bedroom house in Prescott Valley, Ariz. She now has a private
backyard, which she did not have in San Clemente.
What's in it for the IRS? Not much! Only a
small percentage of the population is taxed on the profits from the sale of a
house that they had occupied, thanks to generous provisions that allow single
homeowners to exclude up to $250,000 of capital
gains on the sale of a home ($500,000 for married couples filing jointly).
The tax law, which went into effect in 1997, applies to sellers who live in a
home as a principal residence for two of the five years prior to its sale.
vs. cost of living expenses
It's true that salaries are usually higher than the national average
in demographic areas with high living expenses. For example, the
latest income report published by the U.S. Census Bureau states
that the median income in Colorado was $51,518 in 2004-2005. In
Denver, the median sales price of an existing single family home
averaged $253,200. However, in Arkansas, the median salary was only
$36,406 and a house in Little Rock averaged $128,900.
The ratio between housing and the cost of living is
not consistent everywhere. "Before assuming that the cost of
living and salary differentials have a parallel relationship, spend
a little time doing some research," says Barry L. Brown, president
of Effective Resources in Holiday, Fla. For instance, he notes,
salaries run about the same in Tampa, Fla., as in Nashville, Tenn.
"However, the cost of living in Nashville for the same salary
level is 92.8 percent that of Tampa, Fla.," he says.
Supply and demand may be what drives salaries, but not
necessarily the cost of living. Check out Bankrate's cost
of living calculator to compare the costs of various professional
services and products in your home town versus those in other cities.
your portfolio, your lifestyle -- or both
Housing costs are the biggest expense for most families in the U.S.
"For people who are not ultrawealthy, it's their biggest investment
and piece of debt," says CPA Randy Harrison, a partner at Meyers,
Harrison & Pia in New Haven, Conn. "By relocating into
a lower-cost market, they are able to reduce the carrying cost of
that debt, such as the interest expense on the mortgage."