You just sold it.
That piece of property, land, family farm or house that you rent or inherited.
You just experienced a Life Event. If you haven't read any of my previous articles in this series, I'll answer what is a Life Event first.
A Life Event is a milestone that happens that can cause your life to change, as well as your financial life too. Often resulting in sudden wealth. Some are planned, while others are completely unexpected. Selling property, receiving an inheritance, retirement and job change are a few examples Life Events.
Quite a few of my clients and potential clients have sold property. It's an event that brings up many questions. Especially if this is the first time you've experienced it.
So here are a few questions that will naturally come up:
What will the taxes be like?
Well that all depends on what your cost basis is on the piece of property you sold. If you sell a piece of land or a home that you don't reside in, then whatever you paid for it will not be taxed. Only the value above your cost. For example, if you sell your land for $500,000 and your cost was $200,000, then you would pay capital gains on the $300,000. You'll want to make sure you set aside the dollars for the tax bill if you turn around and buy another piece of property.
If your sale proceeds are in the millions of dollars,and you can't see yourself paying Uncle Sam a large capital gain, then you may want to check into a 1031 exchange. Basically this is like a IRA rollover for real estate. If you roll the proceeds from the sale into another piece of property that is for business or investment, then you will avoid the taxes. Both properties must be "like kind". This means they should be the same nature or character.
Should I buy more property?
That is a question only you will be able to answer, but here are a few considerations:
Do you want to have rental property to maintain?
Will I have to hire someone to maintain, mow and cultivate the property?
Is my income diversified enough?
If the majority of your income is coming from real estate or property, then you may want to invest in a portfolio of stocks and bonds.
What should I do with the money?
If you've decided that you don't want to own more property, then you have to start doing some planning and investing. First, you'll have to set aside some money to pay the capital gains. Then, with what is left over you have some decisions to make about what to do with the money. Options include:
- Adding to your retirement nest egg
- Helping out family members financially
- Charitable giving
- Paying off debts
- Starting a trust of foundation
- Going into business for yourself
You can open a brokerage account with a qualified financial advisor. This account can be a funding account for your other goals. Plus, I'll always suggest doing a little financial planning even when things are chaotic. It will give you a clear information to make good decisions.
If you've just received sudden wealth from the sale of property this will get you started thinking about your next steps. Look for my other articles on Sudden Wealth from Life Events. Or, you could subscribe right here for FREE! I'll automagically send you the articles every Friday.