This strong history of property value gains<\/a> has put many Americans in a position to sell their home for a tidy sum. But first-time sellers may wonder: What happens when you sell your house for a profit? How do you handle the escrow process<\/a> and settle up at closing? Will you owe any taxes<\/a>? And how should you spend the money left over that you haven\u2019t already earmarked for expenses?<\/p>\n While it will be exhilarating to cash in a huge check, closing on a house requires managing a ton of details \u2014\u00a0all while you embark on a huge life change. \u201cIt can be emotional for a seller who has lived in a house for many years,\u201d says Scott Freeman<\/a>, a longtime real estate agent who sells 86% more single-family homes than the average agent in Riegelsville and southeastern Pennsylvania. \u201cBut it should be a fun time with no surprises.\u201d<\/p>\n To avoid stress during what should be a celebratory moment, have a plan for when the \u201csold\u201d sign appears on your property. We\u2019re here to help with these five steps you can expect to take when you sell your house for a profit.<\/p>\n After you sign the purchase agreement with the buyer of your home, you won\u2019t immediately see the profits. Your home first enters the escrow process, a holding period that can last 30-60 days<\/a>. During this time, a third party safely holds any deposits that need disbursing in a separate account to avoid any conflict of interest.<\/p>\n Some states require that a real estate attorney<\/a> serve as this third party. In states where an attorney is not required at closing, other professionals (such as an escrow title company, settlement agent, or real estate agent) will handle closing responsibilities like title transfer<\/a> and drafting closing documents. Regardless, individual buyers and sellers can elect to have an attorney with them<\/a> to review any documents or represent their interests.<\/p>\n The escrow period ends<\/a> once this third-party disburses all funds at closing, including paying off any principal and interest owed on your existing mortgage through the closing date.<\/p>\n Speaking of disbursing funds, your mortgage isn\u2019t your only financial obligation when selling a home. Depending on your price range, the cost to sell your house<\/a> could reach 9% to 10% of the sale price. These may include and are not limited to:<\/p>\n Depending on where you live, you might notice additional fees such as paying for a notary and public utilities, such as sewer and water, through the date of the sale, Freeman says.<\/p>\n It\u2019s estimated that the average cost to sell a house in 2021 is over $31,000<\/a>, not including a seller\u2019s mortgage payoff, according to a recent study conducted by HomeLight. However, because many home sale fees are calculated ad valorem as a percentage of property value, the typical cost to sell a house can increase significantly in cities with higher-than-average home prices.<\/p>\n At the settlement table, your real estate agent will present you with an itemized list of your expenses and final payout. You may hear this document referred to as a closing statement, settlement statement, or the \u201cALTA sheet,\u201d short for the ALTA Settlement Statement<\/a> from the American Land Title Association<\/a>.<\/p>\n Because a home is a capital investment, you are likely wondering whether you\u2019ll owe capital gains taxes<\/a> when you sell your home for a profit. However, the general tax rule is if you\u2019ve owned your home for the past two years and lived in it for two of the past five, you qualify for the capital gains exclusion granted to homeowners for their primary residence. You can find additional and direct guidance through IRS Topic 701: The Sale of Your Home<\/a>.<\/p>\n Here\u2019s a quick way to calculate whether you\u2019ll owe any capital gains taxes<\/a>, courtesy of Nathan Rigney, a lead tax analyst at H&R Block:<\/p>\n Now, do you file your income taxes as a single person, or as a married couple filing jointly?<\/p>\n Note that the title company will report any gain or profit above those figures to the IRS, leaving you to pay capital gains taxes when you file your tax return, Freeman says. The amount of capital gains taxes that you pay depends on your tax bracket.<\/p>\n Bear in mind: You also won\u2019t qualify for the exclusion if you\u2019ve sold a home during the two years prior to this sale, according to the IRS. Talk with your accountant about reporting any profit from your home sale, which may involve Schedule D (Form 1040)<\/a>.<\/p>\n The buyer of your home will typically sign the bulk of the paperwork at closing, but sellers will have a few important documents to review as well. In addition to the closing statement, you might need to sign off on the following:<\/p>\n You might be able to sign whatever\u2019s required remotely<\/a>, though some states still require an in-person notary for certain documents.<\/p>\n \u201cAfter everything is paid, the balance of what\u2019s left over is the seller\u2019s proceeds. The seller is given a check at the settlement table, or the money is wired into their account,\u201d Freeman says.<\/p>\n So, what comes next? Freeman has noticed several ways that sellers divvy up their profits.<\/p>\n \u201cSome people, if they\u2019re fortunate and have other living arrangements and are not directly having to buy a new home, sometimes it goes to retirement,\u201d he says. \u201cSometimes it goes to Disneyland. It can be an exciting time if that money\u2019s not already called for.\u201d<\/p>\n Here are a few options for what to do with your proceeds<\/a>.<\/p>\n If you\u2019ve sold your primary home, chances are, this is your first and best option. \u201cMost people, when they sell a primary residence, take the funds and reinvest it into their next house,\u201d says Chris Carter<\/a>, who ranks in the top 2% of 2,633 real estate agents in Jackson County, Missouri<\/a>.<\/p>\n Freeman has worked with clients who sold their former home in the morning and bought a new one that afternoon, with the proceeds going directly to another title company.<\/p>\n If you have another primary home already, you might use your profit to purchase an investment property to rent \u2014 or you can invest it in stocks or bonds to make your money work for you. If that sounds intriguing, talk with a stockbroker or other financial advisor about the best investment options.<\/p>\n You naturally might want to celebrate your success over a fancy dinner or other splurge. But if you have outstanding loans, medical bills, or credit card debt, the profit from your home sale could give you some much-needed breathing room.<\/p>\n Perhaps that profit would make a hefty contribution to your retirement plan or a child\u2019s college fund. Financial experts say it\u2019s also worthwhile to put a portion in an emergency savings account to cover necessary expenses should the unexpected arise.<\/p>\n Regardless of how you plan to spend your windfall, talk with your real estate agent about reviewing an estimated closing cost sheet beforehand so there are no surprises.<\/p>\n \u201cWe always want the seller to be informed at every step of the process,\u201d Freeman says. \u201cIf an agent is doing their job … they know pretty closely what they\u2019re going to walk away with.\u201d<\/p>\n Header Image Source: (Celyn Kang \/ Unsplash)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" A recent surge in home values has put many Americans in a position to sell their home for a tidy sum. So, what happens when you sell your house for a profit? <\/p>\n","protected":false},"author":76,"featured_media":25024,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[322,341],"tags":[],"class_list":["post-25019","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-logistics","category-closing"],"acf":[],"yoast_head":"\n![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/06\/what-happens-when-you-sell-a-house-for-a-profit-piggy-bank-666x381.png\")
<\/a>1. Have a neutral go-between to safely disburse funds<\/h2>\n
2. Pay off remaining fees and expenses related to the sale<\/h2>\n
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![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/06\/what-happens-when-you-sell-a-house-for-a-profit-calculator-666x381.png\")
<\/a>3. Check if you qualify for the capital gains tax exclusion<\/h2>\n
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4. Make it final with your autograph<\/h2>\n
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![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/06\/what-happens-when-you-sell-a-house-for-a-profit-cash-fan-666x381.png\")
<\/a>5. Any money left over is yours to keep!<\/h2>\n
Put it toward your next down payment<\/h3>\n
Invest it to make more money<\/h3>\n
Spend with an eye on the future by eliminating debt<\/h3>\n
Save it for later<\/h3>\n