All Forum Posts by: Ruth Schrader-Grace

You've thought this through really well, but I'd take a closer look before jumping into a HELOC. It can definitely work short-term, but since it's tied to your current primary, you're taking on new debt right before selling, and that could impact your debt-to-income ratio or cause issues if the sale drags out.

A bridge loan might actually make more sense here, even though the costs are higher upfront. It gives you more breathing room if the transition between homes takes longer than expected, and it doesn't tie up your current property quite the same way a HELOC does.

If you're confident your home will sell soon and you're comfortable with the short-term risk, the HELOC is fine. But if there's any uncertainty about timing, I'd lean toward a bridge loan or even negotiating a rent-back period after selling, just to keep things flexible.

If you have enough equity in your current home, the HELOC gives you the freedom to move forward without rushing the sale and since interest is only paid on what you use, it keeps things manageable during the overlap period.

The only thing to watch is timing and market conditions. If your current home takes longer to sell, make sure you're comfortable with the HELOC payments in the meantime. Also check if your lender charges any prepayment penalties or early closure fees.

From a tax perspective, since both homes are personal residences (not investments), the main thing is tracking potential capital gains and how long you’ve lived in the current property before selling.

You’re in a tricky spot, but balancing convenience and cost here will save a lot of stress later.

If you’ve lived in the home for at least 2 of the last 5 years, you can claim the $500,000 exclusion (married filing jointly) on the gain. Any profit above that amount will generally be subject to long-term capital gains tax. Since you don’t plan to convert the property into a rental, options like depreciation or 1031 exchanges aren’t available.

• Step up your cost basis: Add in eligible improvements you’ve made over the years (renovations, additions, even some closing costs). This can meaningfully reduce taxable gain.
• Time the sale with income: If you can close in a lower-income year (retirement, gap year, lower earnings), you may qualify for a lower capital gains rate.
• Leverage charitable giving: Gifting highly appreciated securities (if you also hold investments) can offset taxable gains from the home sale.
• Marital planning: If one spouse passes before the sale, the surviving spouse often receives a step-up in basis to fair market value, potentially wiping out much of the gain.

Beyond the $500K exclusion, the main levers are maximizing your cost basis and carefully timing the sale. The IRS rules limit deferral strategies here since the home won’t be used as a rental.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

I would recommend keeping track of receipts paid for improvements and renovations. This will increase your basis and therefore reduce your gain. Closing costs also reduce the gain on sale as well (both at purchase and sale)

You’re already using the biggest break available: the 121 exclusion ($500k for married, $250k single), so that's good.  That knocks out a lot of gain right off the top. Here area few other options:

• Basis adjustments: Add in every improvement you made over the 30 years—kitchen remodels, roof, windows, decks, etc. Not maintenance, but upgrades (I tell my clients to just try to get the major stuff because you'll drive yourself crazy trying to find receipts or numbers for every little thing). This raises your cost basis and lowers taxable gain.
• Selling costs: Realtor commissions, title fees, legal fees, etc. reduce the gain.
• Loss harvesting: If you have taxable investments, you can realize losses in the same year to offset the home gain. That’s the only real “offset” you can pair with the sale.

Other than that, it's just trying to use other strategies to lower your overall tax bill.

 In that case, and you are willing to provide the required income info, when you look at the TRUE cost of a loan (rate, up front costs and pre-payment penalty, not just rate) conventional will be the best option every time. 

 Sharing an article published just last year on BP on this exact question:

Short-Term Rental Loans: What Are the Options and How Do DSCR Loans Stack Up?

https://www.biggerpockets.com/blog/short-term-rental-loans-a...

High Level -

-Conventional will typically offer lowest rates/fees but harder to qualify, especially if you are scaling and past the first couple of properties or going for the high-end of the market

-2nd Home (10% Down) - should be very careful here - these are not intended for STR properties and people using them for pure investment properties are entering dangerous territory (you are attesting to use it as a rental half the year or less, no management, need to live in proximity, etc.)

- DSCR Loans - typically your best bet if you don't quality (or have "outgrown") conventional or looking to scale a portfolio or diving into more specialized markets. Note - DSCR lenders can vary quite a bit when it comes to their underwriting/qualification/overall friendliness towards STRs so make sure you are aware of the differences