One of the most common questions I hear from those approaching retirement is, "Now that the kids are all gone, wouldn't selling this big house and moving to a smaller one leave us with some extra cash?"

This isn't an incorrect thought. However, the difference in home prices doesn't translate directly into cash in hand, so today, let's follow one scenario from start to finish.

Let's say there's a couple who has lived in Bergen County, New Jersey, for nearly 30 years. Both are over 62 years old and plan to sell their single-family home for $1 million.

The first cost they encounter isn't capital gains tax but the Realty Transfer Fee. If the term is unfamiliar, think of it as the registration fee paid to the state when transferring ownership of a home.

According to the New Jersey Division of Taxation, this fee is paid by the seller, and the rate varies by price range, with different rates applied for every $500. For transactions exceeding $350,000, the first $150,000 is charged at $2.90 per $500, and the amount over $1 million rises to $6.05.

Calculating based on this table, the fee for a $1 million sale comes out to $9,575 at the standard rate. That's quite a bit more than expected.

However, there's a reduction for sellers over 62 years old. If the seller owns and actually resides in a 1-2 family home, they can qualify for a lower rate.

Applying the reduced rate to the same $1 million sale brings the fee down to $4,675. That's a $4,900 difference, which is significant for just one piece of paperwork.

This paperwork is the RTF-1, the Seller's Statement of Transaction Price. It needs to be notarized and filed with the county along with the deed, so it's wise to inform your attorney about it before closing.

There's one important point to note. The Division of Taxation states that this reduction is granted to individuals, so it cannot be claimed if the property is held in a trust, corporation, or estate.

Many people have surprisingly placed their homes in a living trust for estate planning, but if they sell under that arrangement, they won't qualify for this reduction. This is something I've been surprised by during consultations multiple times.

If the sale price exceeds $1 million, an additional 1% fee known as the mansion tax applies. Simply put, this is a separate fee imposed only on high-value homes, applied to the entire sale price rather than just the excess amount.

Starting from transactions after July 10, 2025, the rate for the portion exceeding $2 million will increase from 2% to 3.5% in stages, and this fee will be paid by the seller. If your home price is around that range, make sure to clarify who will bear what costs during the contract phase.

Next is income tax. At the federal level, if you have owned and lived in the home for at least two of the last five years, individuals can exclude up to $250,000 and couples filing jointly can exclude up to $500,000 from capital gains.

The issue is that the longer you've owned the home, the easier it is to exceed these limits. If you bought a home for $300,000 30 years ago and sell it for $1 million, the profit is $700,000, meaning even a couple could face taxes on $200,000.

Of course, any costs incurred for roof replacements or expansions during that time can be added to the purchase price to reduce the profit. If you have receipts, it's best to pull them out and organize them now.

If you are leaving New Jersey entirely, there's one more cost at closing. Non-resident sellers must prepay estimated income tax using the GIT/REP-1 form, based on the greater of 10.75% of the profit or 2% of the sale price.

However, if it qualifies as your primary residence under IRS Section 121, you can be exempt from this prepayment using the GIT/REP-3 form. Any profit exceeding the exclusion limit will be reconciled when filing your state income tax later.

So far, we've covered the costs for the seller, but the real traps lie in the buyer's side and property tax benefits.

The New Jersey Senior Freeze program reimburses the increase in property taxes. However, to apply for the 2025 benefit, you must have owned and lived in the home before December 31, 2022.

In simple terms, this means that the moment you move, you reset the baseline year for the new home. There has been legislation proposed to allow those who move to continue their eligibility, but it's unclear if it has passed, so it's safer to plan as if it resets.

Stay NJ is a program that reimburses up to 50% of property taxes on your primary residence, up to $6,500. It calculates based on the Senior Freeze and ANCHOR benefits first, then fills in the gap, so if the Freeze is interrupted, the overall benefit calculation may change.

Therefore, I don't believe that moving to a smaller home will necessarily reduce property taxes. You need to compare the tax bill for the new home against the benefits you currently receive to see the actual out-of-pocket amount.

On the buying side, there are costs for title insurance, attorney fees, and moving expenses. If you're moving to a condo or senior community, you'll also incur monthly HOA fees, which are fixed costs that last a lifetime, so be sure to request recent increase history before signing a contract.

Broker fees have no set rate and are negotiable. Don't hesitate to get quotes from several places for comparison.

In summary, to see the money left in hand after selling, you need to subtract the transfer fee, any capital gains tax exceeding the exclusion limit, broker fees, new home purchase costs, and any potential loss of property tax benefits from the price difference.

If I were this couple, I would check the trust title before listing the house and calculate the Senior Freeze benefit as if it were for one year. It wouldn't be too late to make a move after seeing that number.

The figures provided are based on public data from the New Jersey Division of Taxation and the IRS, and benefits may change annually based on the state budget. Results can vary significantly based on individual circumstances, so be sure to consult a real estate attorney or tax professional before any actual transactions.