There are many articles and infographics online that tell you all about how to buy a house and how to sell a house. There are step by step guides on everything you need from a legal perspective as well as a personal perspective to bring you through the process relatively unscathed. Once you’ve handed over your house and closed escrow, the big question is: what next?
Once you’ve been through the stress of trying to sell your house fast, it’s tempting to put your feet up with a flute of champagne and toast to the close of the chapter. You may have handed the keys over to the new owners, but there is still some work to be done and it’s going to start with paperwork. When you’ve closed on a house and you have all the contracts signed, you may want to head for the nearest industrial shredder and get rid of it all – but stop! You must keep all paperwork relating to a home sale until after the next tax year, as you’ll need proof and documentation of all the expenses and proceeds of a sale. After that, there’s still the chance of being audited and not having those crucial documents can be detrimental to you. Not only this, but you need to keep the correspondence and receipts for any home improvements that you made prior to the sale.
There are tax provisions available with the IRS that you can read more about in this article, that mean that you can add the cost of home improvements to the cost basis for when you owned the house. The tax laws constantly – and confusingly – change often, so you have to keep on top of that. Store all the paperwork in a waterproof box in the garage if necessary, just don’t get rid of it all.
If you’ve sold the house and aren’t quite ready to house hunt all over again, you need to ensure you’ve kept your money safe. High interest accounts are one option, and money market mutual funds are another. Either way, you can’t keep the proceeds of a home sale in a regular account if you can help it, as the chance of fraudulent action is just too high to risk it. Choose your next house carefully. You are under no obligation to buy straight away and with the cushion of the sale proceeds, you have some time before you absolutely have to buy again. You also get two years to defer the tax on house-sale profit, so you are under no pressure to buy until you are ready to.
When you finally are ready to buy a home, you’ll have the capital from the house you’ve sold to buy another. So, whether you buy outright or you use some of the profits on a down payment for the new house, you can stay comfortable while you make your choice. Pat yourself on the back, though, as you’ve crossed the home-sale finish line!