Am I required to reinvest the proceeds from primary residence sale into new property?

Question

I am selling my primary residence after 2 years and will qualify for the married $500,000 capital gains exemption. Am I required to roll that money into new property or can I knock out some debt with the excess cash?
Thanks in advance!

I am liking the answers so far...!!

Answer 1

Go ahead and knock out the debt. The exclusion is just that, an exclusion. There are very few requirements other than the two year primary residence requirement. Specifically, the exclusion is called a Section 121 exclusion for section 121 of Title 26.

Good luck,

Answer 2

Answer is no and a few tips to keep in mind when preparing your tax return. If your gain on your home will fall within the $500k exclusion, you do NOT have to even report the sale of your home on your return. This is a common error and people spend extraordinary amounts of time gathering improvement receipts, HUD statements, etc thinking they will get in trouble if they don't report it.

Second, remember that this exclusion you can use every 2 years! It's not a one time exclusion. You only need to live in your primary residence 2 out of the last 5 years to qualify. And even better, if you have to move because of say a job relocation, medical reasons or natural disasters, and are only living in your house for say 1 year, you can prorate the exclusion!

Answer 3

Do whatever you want with the money, there are no tax consequences regardless. The reinvest rule is for 1031 exchanges not the 500k primary residence deduction.

Answer 4

You can do whatever you want to with the money without any tax consequences. The rule about reinvesting in another home went out a number of years ago.

Answer 5

No! The old Rollover Replacement Rule was discarded a decade ago in favor of the current exclusion rule. You can buy bubblegum with if if you're so inclined.

Answer 6

You can do whatever you want with it.

Making debt go away is never a bad idea.