What Happens After You Sell Your House?

After selling your home, important steps follow the closing. Understanding the financial, tax, and administrative aspects that follow a home sale can help ensure a smooth transition.

The Closing Process and Financial Settlement

The closing, or settlement, represents the final stage of a home sale, where ownership legally transfers from the seller to the buyer. This involves signing documents like the deed, bill of sale, and affidavits, often with a closing agent or attorney. The primary purpose of this meeting is to finalize the financial aspects of the transaction and ensure all conditions of the sale contract are met.

The financial settlement determines the net proceeds the seller receives. This process begins with the gross sale price of the property. From this amount, several deductions are made to cover various costs and obligations associated with the sale.

The largest deduction is the payoff of any existing mortgage on the property. The closing agent is responsible for obtaining the final payoff amount from the lender, which includes the principal balance, accrued interest, and any associated fees. This ensures the lien on the property is released, providing clear title to the new owner.

Seller-paid closing costs represent another category of deductions from the gross proceeds. These include real estate agent commissions, which range from 5% to 6% of the sale price, split between the buyer’s and seller’s agents. Other seller costs involve title insurance premiums for the buyer’s policy, escrow fees, and transfer taxes or recording fees imposed by local or state governments. Transfer taxes can vary, sometimes calculated as a percentage of the sale price.

The Closing Disclosure (CD) statement is provided to the seller three business days before closing. This detailed statement itemizes all credits and debits for both the buyer and the seller, providing a comprehensive breakdown of the financial transaction. It clearly outlines the gross sale price, all deductions, and the final net proceeds disbursed to the seller. The closing agent facilitates the financial flow, ensuring all parties are paid and the seller receives funds via wire transfer or check after closing.

Understanding Your Tax Obligations

Selling your primary residence has tax implications, primarily concerning capital gains. A capital gain occurs when the sale price of an asset, like a home, exceeds its adjusted basis. The adjusted basis includes the original purchase price plus the cost of improvements, such as additions or renovations.

The Internal Revenue Service (IRS) provides an exclusion for capital gains from the sale of a primary residence under Internal Revenue Code Section 121. For single filers, up to $250,000 of the capital gain can be excluded from taxable income, while married couples filing jointly can exclude up to $500,000. This means that if your gain falls within these limits, you may not owe any federal capital gains tax on the sale.

To qualify for this exclusion, you must meet both an ownership test and a use test. You must have owned the home for at least two years during the five-year period ending on the date of the sale. You must also have used the home as your main home for at least two years during that same five-year period. These two years do not need to be continuous.

There are situations where the exclusion may not apply or could be limited. If the home was not your primary residence, such as a rental or vacation home, the exclusion does not apply. If you owned and used the home for less than two years but the sale was due to unforeseen circumstances, such as a change in employment, health issues, or other qualifying events, a partial exclusion might be available.

The sale of your home must be reported to the IRS, even if the gain is fully excludable. You will receive Form 1099-S, “Proceeds From Real Estate Transactions,” from the closing agent, which reports the gross proceeds to the IRS. If you have a taxable gain or are required to report the sale, you will report it on Schedule D, “Capital Gains and Losses,” and Form 8949, “Sales and Other Dispositions of Capital Assets,” when filing your federal income tax return. Consulting with a qualified tax professional can provide personalized advice and ensure compliance with all applicable tax laws.

Post-Sale Administrative Tasks

After closing, several administrative tasks require attention. One immediate step is to finalize and transfer utility accounts. This involves contacting providers for electricity, gas, water, internet, and trash services to schedule the termination of services in your name on or shortly after the closing date. Confirming the final meter readings and ensuring the accounts are properly closed prevents you from being billed for the new owner’s usage.

Updating your address with various entities is another administrative action. Filing a change of address with the United States Postal Service (USPS) ensures your mail is forwarded to your new residence. Update your address with banks, credit card companies, investment firms, insurance providers, employers, and subscription services to avoid missing correspondence.

Cancel your homeowner’s insurance policy for the sold property. Once the title has transferred and the sale is complete, you are no longer responsible for insuring the property. Contact your insurance provider to inform them of the sale date and request the cancellation of the policy, which may entitle you to a refund for any unused premium.

Maintain records related to the home sale for future reference, particularly for tax purposes. You should retain the Closing Disclosure (CD) statement, which details the sale proceeds and closing costs, for at least three to seven years after filing the tax return for the year of the sale. Keep records of home improvements, such as receipts for new roofs, additions, or renovations, as these expenses can increase your adjusted basis and potentially reduce your taxable gain if you sell another property.