Housing is one of the largest line items in any retirement plan, and the Housing & Real Estate adjustment is the recommended way to model it. It captures ownership costs (taxes, maintenance, insurance, mortgage), rental costs, and rental income in a single timeline-aware adjustment with built-in handling for sale, capital gains, and 1031 exchanges.

The Adjustment Picker exposes three Housing & Real Estate presets that pre-fill the right defaults for each housing situation: Primary Residence: Mortgage, Primary Residence: Rent, and Rental Property. Each one is described below.

Primary Residence: Mortgage

Use this when you own (or plan to own) the home you live in. The adjustment tracks property value with a chosen appreciation rule, an active mortgage (balance, rate, remaining term), and the recurring costs of ownership: property tax (% of value), insurance, maintenance (% of value), and HOA. There is no rental income.

The most common modeling choice is appreciation type. Flat rate applies a constant nominal growth (e.g. 3% / yr). This is what most users want. CPI keeps the home flat in real dollars. Not adjusted freezes the nominal value forever, useful when stress-testing.

On sale (set Sale year), the engine computes net proceeds (sale price − selling costs − remaining mortgage), applies the IRC §121 primary-residence capital-gains exclusion ($250k single / $500k joint, when the residency test is met via Years lived in), and routes the proceeds to your designated sale-proceeds account.

Primary Residence: Rent

Use this when housing is purely an expense. A pre-retirement city apartment, a downsized rental after a home sale, a stint living abroad. You enter monthly rent and a rent-growth rule (CPI by default, or Flat rate for rent-controlled situations). All ownership fields (mortgage, property tax, maintenance) are hidden and zeroed.

A common pattern is to stack a Primary Residence: Mortgage ending at sale year N with a Primary Residence: Rent starting at year N + 1, modeling the transition from owner to renter without double-counting housing in the overlap year.

Rental Property

The Rental Property preset models an investment property. A long-term hold that produces income, has its own cost stack, and has very different tax mechanics from a primary residence. It is the only preset that participates in 1031 exchanges (see below).

Income side

• Monthly rent grossed up to annual.
• Vacancy rate (default 5%) applies as a haircut on gross rent. Effective rent = monthly × 12 × (1 − vacancy%).
• Management fee rate (default 10%) is a percentage of effective rent and is subtracted as an expense.
• Rent growth follows its own rule (CPI default, or Flat / Not adjusted), independent of property appreciation.

Expense side

The same property-tax, insurance, maintenance, and HOA fields as a primary residence, plus any mortgage payment. Net cash flow each year = effective rent − management fee − operating expenses − mortgage payment, deposited to the simulation that year.

Depreciation and tax mechanics

The engine accrues depreciation each year using the residential 27.5-year schedule: annual depreciation = property value × (1 − land value % / 100) / 27.5. Land is not depreciable, which is why the Land value % field exists (default 20%). Depreciation reduces the cost basis and is recaptured on sale (taxed at the depreciation-recapture rate, currently capped at 25%). The simulation handles this automatically when a sale year is set, unless you 1031-exchange it.

Purchase modes (Already owned / Future purchase / 1031 Exchange)

Inside any Real Estate adjustment, the Purchase Type toggle decides where the property comes from. The default is Already owned. You enter a current property value, and the simulation starts the adjustment in year 1. The other two modes are purchase events that consume cash from the simulation.

Already owned

The default. The property exists at the simulation's start year at the value you enter, with whatever mortgage balance and term remain. No cash leaves the portfolio at the start.

Future purchase

Use this for a planned acquisition. A vacation home in 2030, a downsize-and-buy, an investment property purchased later in retirement. You enter the purchase price at purchase in today's dollars, a down payment (% or fixed dollars), a mortgage rate and term, and pick the funding source account the down payment is pulled from. In the purchase year the engine debits the down payment, originates the mortgage, and starts running the property's recurring cost stack from that year forward.

1031 Exchange (rental → rental)

A 1031 like-kind exchange lets you roll a rental into another rental and defer the capital gains tax and depreciation recapture you would otherwise owe on the sale. The tab is only enabled when the replacement adjustment is a rental; you can't 1031 into a primary residence or vacation home.

Setting one up

1. Open the existing rental (the one you'll sell) and set its Sale year. This is the relinquished property.
2. Add a new Real Estate adjustment for the replacement property and toggle it to Rental Property.
3. Switch the new adjustment's Purchase Type to 1031 Exchange and pick the relinquished property from the dropdown. The form will auto-pin the new property's purchase year to the relinquished property's sale year. They must match.

What the engine actually does

• No tax in the sale year. Capital gains and depreciation recapture from the relinquished property are not realized. The blue 1031 info card on the form previews the deferred amounts.
• Cost basis carries over. Adjusted basis = relinquished basis − accumulated depreciation, plus any additional cash invested in the replacement. That basis sticks with the new property and drives its own future depreciation and eventual gain.
• "Boot" is taxable now. If the replacement costs less than the relinquished property's net sale, the difference is unrecognized cash that the IRS treats as a partial sale. The boot portion is taxed in the exchange year. The simulation flags this when it detects boot.
• Years must line up. The replacement's purchase year is locked to the relinquished property's sale year (the IRS allows 45/180-day windows in the real world; the simulation operates on annual ticks, so they must equal).

Home Equity Line of Credit (HELOC)

A HELOC is a revolving credit line secured by a property. Add it from the Housing & Real Estate picker (the same place you add property presets) and link it to an existing Real Estate adjustment. That link lets the simulation pay the line off automatically if the secured property is sold.

When to use it

• Standby buffer: keep a line available as a reserve during bad return years.
• Bridge financing: draw cash before an expected property sale or other liquidity event.
• Renovation funding: model project cash now, then carry HELOC repayment later.

Already exists vs Future HELOC

Use the HELOC Status radio at the top of the editor to tell FIREproof whether the line of credit is open today or will be opened in a future year:

• Already exists (default). The line is open as of the adjustment's start year. Enter the current amount owed on the line in Outstanding Balance. The draw clock starts at the start year, so Draw Period Remaining and Repayment Period Remaining are the years left on the contract. Do not enter the original term. Example: a HELOC opened 3 years ago with an original 5-year draw period should be entered with a draw period of 2. If the draw window has already closed and the line is in repayment, enter a draw period of 0. The line then starts amortizing immediately.
• Future HELOC. The line is not yet open. The Initial Balance field is hidden and treated as $0; in its place, pick an Origination Year. The line opens that year and the draw clock starts then. If the HELOC is linked to a future-purchase Real Estate adjustment, switching to Future automatically aligns the origination year to the property's purchase year (the line can't open against a house that doesn't yet exist).

How the cash flow works

During the draw period, FIREproof draws up to your annual draw amount without exceeding the credit limit. The draw is treated as an inflow and routes through Cash Flow Priorities. Interest is paid each year on the end-of-year balance.

After the draw period, no new draws occur. The outstanding balance amortizes over the repayment period using the fixed annual interest rate, plus any extra annual principal you enter.

Tax treatment

The Interest is deductible checkbox should only be used when the borrowed funds are used to buy, build, or substantially improve the home securing the line. FIREproof logs deductible HELOC interest separately in the year-by-year events so you can audit the Schedule A assumption.

Stacking adjustments across a timeline

A single plan can have any number of Real Estate adjustments running concurrently or sequentially. Common patterns:

• Primary mortgage now → primary rent after sale (downsize).
• Primary residence + vacation home (two parallel Owned adjustments).
• A rental held for 10 years, sold, and 1031-exchanged into a different rental.
• A future purchase that overlaps an existing primary residence for one year while the move happens.