7. Gain on the Sale of a Primary Residence

Downsizing is a common strategy for retirees looking to reduce maintenance costs, lower property taxes, and free up trapped equity. The tax code heavily favors homeowners who sell their primary residence through Section 121 of the Internal Revenue Code.

If you are single, you can exclude up to $250,000 of capital gains from the sale of your home from your taxable income. If you are married and filing jointly, that exemption doubles to $500,000.

To qualify for this massive senior tax benefit, you must pass the ownership and use tests. You must have owned the home and lived in it as your primary residence for at least two out of the five years immediately preceding the sale. You can utilize this exemption multiple times throughout your life, provided you meet the two-year requirement for each property. This allows you to walk away from a closing table with hundreds of thousands of dollars in tax-free cash to fund your retirement lifestyle.