If you'll need to sale proceeds within a few years, just keep it in a high yield savings account or CDs.
Paying down debt, investing the money or growing an emergency fund are all solid options that can bring you closer to your financial goals. Even if you opt to do nothing with it right away, there are savings alternatives to ensure that it doesn't get mismanaged in the interim.
If the home is a rental or investment property, use a 1031 exchange to roll the proceeds from the sale of that property into a like investment within 180 days.13.
Use a 1031 Exchange to Defer Capital Gains
It's a popular way to defer capital gains taxes when selling a rental home or even a business. Often referred to as a “like-kind” exchange, this tax deferment strategy is defined in Section 1031 of the Internal Revenue Code.
Generally, the proceeds from a home sale are excludable up to $250,000 for individual filers and $500,000 for married couples, as long as the home was your primary residence and you lived in it for at least two of the last five years. Amounts over the exclusion limit are subject to capital gains tax.
Reinvest this chunk of cash into your next house/down payment. Invest in other types of real estate (aside from primary residences) Save it in a traditional savings account or money market account.
The proceeds from a home sale can be used in a variety of ways. With up to $500,000 available tax free, you could use the money to make a down payment on another home, pay down problematic debt, increase your stock portfolio or implement strategies to improve your retirement plan.
Depending on how big your debt is, it's true that the proceeds from a home sale will probably take a huge bite out of your debt—or even pay it off.
Save towards a long-term goal
Buying a home, planning a wedding or splashing out for a big purchase, like a new car might be one of your longer term goals. You may want to put your lump sum into a savings account for this. You'll need to know the rules of the account you are paying into and when you can take money out.
Invest in your future
Some homeowners might choose to use their renewed financial flexibility to purchase a second home, vacation property or investment property. Ventures such as these could potentially provide additional income streams and help you build wealth over time.
A 1031 exchange allows you to purchase a new property within 180 days from the time of the first property sale. Failure to do so will result in capital gains tax being owed. Read our guide to capital gains taxes on investment properties.
Unfortunately, there's no age limit to paying capital gains tax. However, you can manage and even reduce your tax burden with the right strategies and information. Here are the basics about capital gains tax rules and rates as well as some tax-saving tactics.
If property values are high, selling your home could yield a substantial return on investment. However, if the market is unfavorable or uncertain, renting might be a more prudent option.
A: You can defer capital gains taxes by using a tax deferred exchange, which means that you reinvest the windfall from the sale into a replacement property. However, you need to act quickly. If you wait more than 180 days to reinvest, you will have to pay taxes on the proceeds.
Putting your proceeds to good use
If you're not planning to roll your real estate proceeds into the next property when you sell your home, you must decide where to put your proceeds. Depending on your financial circumstances, it might make sense to pay down debt, invest for growth, or supplement your retirement.
To cash a large check immediately, try your bank if you have one or the bank that issued the check. You might also be able to cash it by signing it over to a friend or relative who can give you the cash once it clears; buying prepaid debit cards with it; or going to a check cashing outlet.
If you received checks for someone who died, you'll need to go through the probate process in order to deposit them into an account or cash them. This may require being named as the executor or administrator of the estate, or getting the check signed by someone who is authorized to do so on behalf of the estate.
If Your Mortgage Is Paid Off
If you don't have a mortgage, then that's more money that you get to keep in your pocket. You'll receive the cash from the sale of the house, minus selling costs. These are typically closing costs, real estate agent commission and outstanding bills related to the property and taxes.
If you sell a house or property within one year or less of owning it, the short-term capital gains is taxed as ordinary income, which could be as high as 37 percent. Long-term capital gains for properties you owned for over a year are taxed at 0 percent, 15 percent or 20 percent depending on your income tax bracket.
To qualify for the principal residence exclusion, you must have owned and lived in the property as your primary residence for two out of the five years immediately preceding the sale. Some exceptions apply for those who become disabled, die, or must relocate for reasons of health or work, among other situations.