I sold my house. Yay! Now what?
October 14, 2014 1:01 PM Subscribe
Yay! I finally sold my house and have the check from the title company in hand. I made money on the sale of the house, but I have a few questions about how to maintain my investment. For tax purposes, does this qualify as "income"? Will I be assessed a Capital Gains Tax? Is a money market the best place to keep the cash from the sale? Please help a money noob...
My house sold, and much to my surprise, I made a handsome amount on the sale. Naturally, I would like to keep the money from the sale intact as much as possible, long-term.
I lived in the house for five years (hubby lived there for 2.5 yrs.). My name is on the title (hubby's name was never added to the title).
I have no major debts at this time, nor are we looking to own another home for quite a while down the road.
My questions are:
1. Does the money from the sale count as "income" (and therefore subject to income tax)?
2. Would I have to pay a capital gains tax in this case?
3. What is the best place to keep the money (IRA, savings, money market, etc.)?
4. What else should I be aware of in my situation?
Finally, in my research, I came across something saying there is a time period of 2 years to defer tax on house sale profits, but I am not sure how/if this applies to me. What does this mean?
With the convoluted and ever-changing tax codes, it's hard to keep up with what the rules really are, and I obviously don't want to be penalized by the IRS in any way.
State of Nevada, btw. Thank you!
My house sold, and much to my surprise, I made a handsome amount on the sale. Naturally, I would like to keep the money from the sale intact as much as possible, long-term.
I lived in the house for five years (hubby lived there for 2.5 yrs.). My name is on the title (hubby's name was never added to the title).
I have no major debts at this time, nor are we looking to own another home for quite a while down the road.
My questions are:
1. Does the money from the sale count as "income" (and therefore subject to income tax)?
2. Would I have to pay a capital gains tax in this case?
3. What is the best place to keep the money (IRA, savings, money market, etc.)?
4. What else should I be aware of in my situation?
Finally, in my research, I came across something saying there is a time period of 2 years to defer tax on house sale profits, but I am not sure how/if this applies to me. What does this mean?
With the convoluted and ever-changing tax codes, it's hard to keep up with what the rules really are, and I obviously don't want to be penalized by the IRS in any way.
State of Nevada, btw. Thank you!
Are you still married? IIRC, Nevada is a "community property" state, which means it doesn't really matter if he was on the title or not, it's still considered half his.
posted by tckma at 1:09 PM on October 14, 2014
posted by tckma at 1:09 PM on October 14, 2014
1) Usually you don't get taxed on the first $250,000 of profit. You MAY be able to deduct $500,000 if the house was considered community property, even though your husband wasn't on the title.
That part gets complicated and you should talk to a tax professional. If you owned it before you were married, it's your property, but if his money went into it (mortgage payments from a joint account, for instance), then an argument can be made that it's joint property. (If you two were getting divorced, that's something that would certainly be being discussed!)
2) As I understand it, profit over the $250k is taxed as capital gains, which is generally lower than your income taxes.
I don't know Nevada law, though, except that it's a Community Property state. (Most of us ex-Mexican/Spanish states are Community Property as a holdover from Spanish law, vs. English or French law)
3) There is no way for anyone on the internet to tell you the best place to keep this money. You should talk to a fee-only financial planner by the hour or something. They will ask you questions like: what do you anticipate using it for? When would that be?
4) I really think it's worth while to hire someone who has some expertise in this area. I generally hesitate to recommend tax preparers because I have run into so many who are too tax focused. (Saving taxes should not be your PRIMARY concern, generally.) but in this case, even an Enrolled Agent would be better at this stuff than people on the internet. (But I still recommend finding a financial planner and paying them for a couple hours' advice.)
posted by small_ruminant at 1:09 PM on October 14, 2014
That part gets complicated and you should talk to a tax professional. If you owned it before you were married, it's your property, but if his money went into it (mortgage payments from a joint account, for instance), then an argument can be made that it's joint property. (If you two were getting divorced, that's something that would certainly be being discussed!)
2) As I understand it, profit over the $250k is taxed as capital gains, which is generally lower than your income taxes.
I don't know Nevada law, though, except that it's a Community Property state. (Most of us ex-Mexican/Spanish states are Community Property as a holdover from Spanish law, vs. English or French law)
3) There is no way for anyone on the internet to tell you the best place to keep this money. You should talk to a fee-only financial planner by the hour or something. They will ask you questions like: what do you anticipate using it for? When would that be?
4) I really think it's worth while to hire someone who has some expertise in this area. I generally hesitate to recommend tax preparers because I have run into so many who are too tax focused. (Saving taxes should not be your PRIMARY concern, generally.) but in this case, even an Enrolled Agent would be better at this stuff than people on the internet. (But I still recommend finding a financial planner and paying them for a couple hours' advice.)
posted by small_ruminant at 1:09 PM on October 14, 2014
Yes, the gains are income. Yes, the gains are subject to capital gains tax. You can exclude either $250K or $500K of those gains from your taxes. It depends on whether you file jointly or separately in the US (I assume you live in the US)
There's a big document that covers what expenses as part of the sale can be deducted from the gain.
posted by GuyZero at 1:10 PM on October 14, 2014
There's a big document that covers what expenses as part of the sale can be deducted from the gain.
posted by GuyZero at 1:10 PM on October 14, 2014
My questions are:
1. Does the money from the sale count as "income" (and therefore subject to income tax)?
2. Would I have to pay a capital gains tax in this case?
Probably not, here's what the IRS Says about it.
3. What is the best place to keep the money (IRA, savings, money market, etc.)?
What do you want to do with it. When do you want to do it? Is it a long term investment, or do you want to park the money for some planned use in the future? There are limits to what you can put into a tax-defered IRA, or a regular IRA. Again, here's what the IRS has to say.
4. What else should I be aware of in my situation?
You know, it might seem expensive, but a trip to your friendly neighborhood CPA might be in order. (Don't pick a place with the statue of liberty in front, a REAL CPA.)
posted by Ruthless Bunny at 1:11 PM on October 14, 2014 [1 favorite]
1. Does the money from the sale count as "income" (and therefore subject to income tax)?
2. Would I have to pay a capital gains tax in this case?
Probably not, here's what the IRS Says about it.
3. What is the best place to keep the money (IRA, savings, money market, etc.)?
What do you want to do with it. When do you want to do it? Is it a long term investment, or do you want to park the money for some planned use in the future? There are limits to what you can put into a tax-defered IRA, or a regular IRA. Again, here's what the IRS has to say.
4. What else should I be aware of in my situation?
You know, it might seem expensive, but a trip to your friendly neighborhood CPA might be in order. (Don't pick a place with the statue of liberty in front, a REAL CPA.)
posted by Ruthless Bunny at 1:11 PM on October 14, 2014 [1 favorite]
I agree with Ruthless Bunny except that I have found that Enrolled Agents do just as good of a job, and sometimes better, because CPAs are sometimes more trained for corporations/businesses and Enrolled Agents mostly do personal taxes.
But either way should be fine, and better than internet people.
posted by small_ruminant at 1:13 PM on October 14, 2014 [1 favorite]
But either way should be fine, and better than internet people.
posted by small_ruminant at 1:13 PM on October 14, 2014 [1 favorite]
I mention the bit about Nevada laws because I don't know if you have additional taxes to worry about. California has its own income tax, which includes capital gains. I'm pretty sure Nevada does, too, at a little lower rate than California. (Florida doesn't have any, I don't think.)
EDIT: Nope. Nevada apparently does not have capital gains taxes (other than the Federal ones.)
posted by small_ruminant at 1:20 PM on October 14, 2014
EDIT: Nope. Nevada apparently does not have capital gains taxes (other than the Federal ones.)
posted by small_ruminant at 1:20 PM on October 14, 2014
Every piece of tax advice I have ever been given on Metafilter, aside from "get an accountant" or more importantly "get a NEW accountant" has been bad advice.
Get an accountant.
posted by poffin boffin at 1:30 PM on October 14, 2014 [5 favorites]
Get an accountant.
posted by poffin boffin at 1:30 PM on October 14, 2014 [5 favorites]
I'm going to nth everyone that said to talk to an accountant. It's maybe an hour of their time to answer all your questions and advise you on the best course of action, including how to minimize any tax burden you may have for the year. Small price to pay for getting everything right with the IRS.
posted by bedhead at 1:33 PM on October 14, 2014
posted by bedhead at 1:33 PM on October 14, 2014
Contrary to what GuyZero says, the money is not ordinary income and is not subject to income tax. Ordinary income is earnings from work or other gainful activity. You sold a house worth $x for $x. That does not produce income.
Capital gains is the appreciation in value - $x less $y. The $y figure is your cost basis. The difference if any is capital gains income but as stated above the first $250,000 is exempt.
posted by yclipse at 2:30 PM on October 14, 2014
Capital gains is the appreciation in value - $x less $y. The $y figure is your cost basis. The difference if any is capital gains income but as stated above the first $250,000 is exempt.
posted by yclipse at 2:30 PM on October 14, 2014
I said the gains were income, not that the total amount received was income.
posted by GuyZero at 2:54 PM on October 14, 2014
posted by GuyZero at 2:54 PM on October 14, 2014
Response by poster: Thanks, everyone. I should have mentioned that I was planning on finding a financial/accounting professional at some point anyway, and that I was just hoping for a bit of a better understanding of things before I went in. I have an appointment with a good CPA firm next week.
As far as the capital gains, the amount I made was nowhere near the $250K mark, so I'm good there.
A divorce could be a possibility in the future.
I appreciate the links, personal insight, etc. Thank you...
posted by chatelaine at 3:30 PM on October 14, 2014
As far as the capital gains, the amount I made was nowhere near the $250K mark, so I'm good there.
A divorce could be a possibility in the future.
I appreciate the links, personal insight, etc. Thank you...
posted by chatelaine at 3:30 PM on October 14, 2014
Best answer: A divorce could be a possibility in the future.
Well, that certainly would affect what else you'd need to be aware of!
Talk to a divorce attorney about the best place to keep the money. Do this before you deposit the funds anywhere. The type of ownership on the account might be important.
If the sale hasn't closed yet, talk to an attorney beforehand.
posted by yohko at 4:38 PM on October 14, 2014
Well, that certainly would affect what else you'd need to be aware of!
Talk to a divorce attorney about the best place to keep the money. Do this before you deposit the funds anywhere. The type of ownership on the account might be important.
If the sale hasn't closed yet, talk to an attorney beforehand.
posted by yohko at 4:38 PM on October 14, 2014
Best answer: FYI, even if the title company or whoever is handling the closing is planning to make the check out to a person or entity that's not what you would want, it's generally possible (in my state, anyhow) to have that changed even day of closing. There might be some additional paperwork involved, depending on what those changes are.
You'll need to sign various papers for the closing. If, after talking to your divorce attorney, you need the funds with a different payee on the check, ask for that before you sign anything. Ask the divorce attorney how to handle this, as both divorces and real estate are extremely specific to each state.
If it's before closing, when you talk to the divorce attorney bring a copy of the contract for the house with any addendums and any paperwork you have from the title company (or whoever is handling the closing).
I hope everything works out for the best for you.
posted by yohko at 7:50 AM on October 15, 2014
You'll need to sign various papers for the closing. If, after talking to your divorce attorney, you need the funds with a different payee on the check, ask for that before you sign anything. Ask the divorce attorney how to handle this, as both divorces and real estate are extremely specific to each state.
If it's before closing, when you talk to the divorce attorney bring a copy of the contract for the house with any addendums and any paperwork you have from the title company (or whoever is handling the closing).
I hope everything works out for the best for you.
posted by yohko at 7:50 AM on October 15, 2014
This thread is closed to new comments.
posted by griphus at 1:08 PM on October 14, 2014 [5 favorites]