Lifetime Planner - Handling of Property Sale in Future

meesha

In the lifetime planner, I have added the future purchase and sale of a primary residence home. When I look at the Income and Expenses summary for the year of the sale, it shows a value for Portfolio Summary, Taxable, Plus: Gains which is higher than just that for my normal investments. I am assuming that Quicken is calculating some level of gains from investing the money received for the sale of the property. But I can't figure out how it's calculating the number I'm getting. Also, I would have assumed it had something to do with the date when I plan to sell it during the year but I change that and it doesn't seem to make a difference.

Scooterlam

meesha said:

In the lifetime planner, I have added the future purchase and sale of a primary residence home. When I look at the Income and Expenses summary for the year of the sale, it shows a value for Portfolio Summary, Taxable, Plus: Gains which is higher than just that for my normal investments. I am assuming that Quicken is calculating some level of gains from investing the money received for the sale of the property....

Correct.  Assuming that you invest the proceeds from the sale.  The proceeds would be shown under Portfolio Summary>Taxable>Plus Deposits in the year you sold the home.  The deposit into your investment account of the home proceeds would then begin to growth based upon your investment "rate of return"

meesha said:

...But I can't figure out how it's calculating the number I'm getting. Also, I would have assumed it had something to do with the date when I plan to sell it during the year but I change that and it doesn't seem to make a difference.

I can see your point.   In my test file, I can vary the "sold date" and in doing so, does affect the "gains" figure.  I would have thought too, that varying the sold date would have prorated the gains figure based on the "rate of return" assumption.    

What I found is (in the year of the sale) the "Plus:Gains" is exactly 1/2 of my investment "rate of return" set in "assumptions".  Where "Plus:deposits" happens to be also the beginning balance for the taxable account.  See my test scenario below....



So it seems Quicken assumes, in the year of the home sale,  the value of the gains on the portion of the home sale deposit is 1/2 of your assumed "rate of return".  Perhaps its an assumption to simplify the model?

However, if you look at the next year after the home sale, you will find your Taxable>Plus:Gains figure to be inline with your "rate of return" assumption.  This is what I see at least.



To test this, I isolated home gain in my taxable account such that the gain is the first and only deposit to a taxable account in LTP.  That is, I:
1.  Excluded all my taxable investment accounts from LTP
2.  Set Living Expenses to $0
3.  Set "Less: Tax on Gains" to 0% (found in the RoR assumptions dialog)
and probably a few other assumptions that didnt affect what I was doing!
4.  Zeroed out any income or expenses associated with the home buy and sell.

While I would like to hear from Quicken or others if this is indeed an assumption made for asset sales in LTP.  

Its great that your curious as to how the numbers work in LTP.  Its important!  And working through the problem helps with understanding this or most any other retirement planner.   Hope this helps.

Scooterlam

meesha said:

In the lifetime planner, I have added the future purchase and sale of a primary residence home. When I look at the Income and Expenses summary for the year of the sale, it shows a value for Portfolio Summary, Taxable, Plus: Gains which is higher than just that for my normal investments. I am assuming that Quicken is calculating some level of gains from investing the money received for the sale of the property....

Correct.  Assuming that you invest the proceeds from the sale.  The proceeds would be shown under Portfolio Summary>Taxable>Plus Deposits in the year you sold the home.  The deposit into your investment account of the home proceeds would then begin to growth based upon your investment "rate of return"

meesha said:

...But I can't figure out how it's calculating the number I'm getting. Also, I would have assumed it had something to do with the date when I plan to sell it during the year but I change that and it doesn't seem to make a difference.

I can see your point.   In my test file, I can vary the "sold date" and in doing so, does affect the "gains" figure.  I would have thought too, that varying the sold date would have prorated the gains figure based on the "rate of return" assumption.    

What I found is (in the year of the sale) the "Plus:Gains" is exactly 1/2 of my investment "rate of return" set in "assumptions".  Where "Plus:deposits" happens to be also the beginning balance for the taxable account.  See my test scenario below....



So it seems Quicken assumes, in the year of the home sale,  the value of the gains on the portion of the home sale deposit is 1/2 of your assumed "rate of return".  Perhaps its an assumption to simplify the model?

However, if you look at the next year after the home sale, you will find your Taxable>Plus:Gains figure to be inline with your "rate of return" assumption.  This is what I see at least.



To test this, I isolated home gain in my taxable account such that the gain is the first and only deposit to a taxable account in LTP.  That is, I:
1.  Excluded all my taxable investment accounts from LTP
2.  Set Living Expenses to $0
3.  Set "Less: Tax on Gains" to 0% (found in the RoR assumptions dialog)
and probably a few other assumptions that didnt affect what I was doing!
4.  Zeroed out any income or expenses associated with the home buy and sell.

While I would like to hear from Quicken or others if this is indeed an assumption made for asset sales in LTP.  

Its great that your curious as to how the numbers work in LTP.  Its important!  And working through the problem helps with understanding this or most any other retirement planner.   Hope this helps.

meesha

Thank you for your response and the clarification. I did some more checking. Like you said above, the only year that is in question is the year of the sale. The numbers I was getting both for the years before and the years after were as I expected. The deposit into my portfolio for the sale year also was explainable. It was only the gains number that didn't seem to compute. In my case, I left my plan with the purchase in it and then just altered what year the sale occurred and looked at how the gains numbers changed as I moved the sale year around. At today's value the "additional" gains were always the same number for the year I sold the property (understandably they changed when I owed taxes on the sale - less money invested). In future values, they of course changed based on inflation. In my case, however, the number wasn't exactly 50% of my rate-of-return. I think you are right, Quicken has simplified the calculations and I don't have a problem with that - after all I don't really know what time of year I'll be selling the property and if I will immediately invest the funds. Mostly, I would just like to know how they are calculating it.
Yes, I'm one of those people who has to find the missing penny when I'm balancing my accounts :smile: