Proceeds from sale of house???

iVillage Member
Registered: 10-10-2003
Proceeds from sale of house???
7
Thu, 03-10-2005 - 1:23pm
My DH and I have recently moved back to our hometown and are desapretly trying to get out financial life in order. We have some credit card debt, about $6000, and we would like to be rid of this. I also have student loans that I have faithfully been paying off for almost a decade. We are torn between two options and struggling to make a wise decision. We are considering two options, using the proceeds of our house sale to pay off most of our debt, and renting for a couple of years, with the intention to build a home, or jumping back into owning a house. This decison is compounded by a couple of other factors, my student loans will be paid off in 18 months, I currently pay almost 500 a month on these, and in two years both of our children will be in school full time (childcare $1000 a month). Between the student loans, credit cards and childcare we are very stretched at times. Having this money would allow us to build a very nice home. The other option is to buy a smaller home now. I like this option because we would be settled and would still be able to pay off debt if we stepped back a bit from our current mortgage. We have debated the pros/cons and still are not sure. I would love to hear your opinions!
Avatar for mymartes
iVillage Member
Registered: 03-26-2003
Thu, 03-10-2005 - 1:31pm

just my opinion, why not save 1/2 of the money and the other 1/2 put toward debt.

MYM

Avatar for cl_phocid
iVillage Member
Registered: 03-26-2003
Thu, 03-10-2005 - 2:06pm
I think mymartes brings an excellent point.

All my best,
Danni

iVillage Member
Registered: 02-25-2004
Thu, 03-10-2005 - 4:54pm

Don't know if this helps but...my DH and I are in the process of selling our home and have decided that since it's enough we will pay off all our debts and put the rest into savings with the intention of leaving it in savings until we are ready to buy a home again and then using it as our 20% down on our new home. We figured this would be a good idea because with 20% down our new mortgage would be SIGNIFICANTLY lower than what we're paying right now. In the meantime before we buy another home, because we'll no longer have monthly debts this will free up about 700 dollars that right now are going towards bills -we will be putting that into savings as well, and will also learn to start buying bigger things with cash saved as opposed to putting things on credit which is what in the past has gotten us in trouble.

Anyway, it does seem like a good idea to put some towards debt and putting some in savings...good luck to you and your husband in your decision. Work your projection figures backwards and forwards and see what will pay off in the long run.

Good luck :)

iVillage Member
Registered: 11-13-2004
Thu, 03-10-2005 - 5:33pm
Definately pay off as much of your debt as you can, and keep at least 6 months of money in savings for emergencies. The home can wait. Get your debt under control first. You owned a home once, you will do it again, and it will be easier when all your other debts are paid. Good luck.
iVillage Member
Registered: 02-16-2004
Thu, 03-10-2005 - 7:17pm

Please check with a tax advisor!

I believe that if you don't purchase a new house within 2 years of selling the old house, the profit from the sale is taxable (federal). If you do purchase a house, the proceeds from the sale are not taxable. Depending on how much you actually made on the sale, it might be better to purchase an inexpensive home immediately rather than pay Uncle Sam a large amount.

HTH
Beth

iVillage Member
Registered: 10-10-2003
Fri, 03-11-2005 - 11:46am

We live in Canada and the tax laws are a little different here, as long as it was your primary residence you do not pay captital gains. If we decide to rent our goal would be to build a new home 2 years from now.....

I like the pay debt and save option, however, that wouldn;t be feasible if we decide to buy another home, all of the proceeds would go towards a downpayment and closing costs.

iVillage Member
Registered: 02-19-2004
Fri, 03-11-2005 - 12:04pm
The law changed years ago and now it is usually not taxed (for federal). I believe the limit is $250,000 of profit for an individual, $500,000 for a couple and the time frame is either 5 years or maybe 10 years. So you can have quite a bit of profit and not be taxed. When we sold our home in 2003 we had maybe $50k of profit and we did have to pay state taxes, but they were very minimal.

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