Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
investing proceeds from house sale
Old 07-31-2018, 02:58 PM   #1
Dryer sheet aficionado
 
Join Date: Feb 2018
Posts: 47
investing proceeds from house sale

Here is my scenario:
1) 59 years old and and plan to work for about two more years
2) Planning to sell my big house and move into my rental house for at least two years to avoid capital gains on the rental house in case we want to sell that.
3) May have about $1million from the sale of my house after debts are paid off.
4) All other money is in the 401k
5) I am in a high tax bracket
6) Target allocation for all investable money is 80/20 Total market index/ total bond index long term

Question: What to do with the $1mil?

My Ideas: $400k would need to be in other than equities to maintain 80/20 overall. I'm thinking quality dividend stocks like JNJ for the $400 k by dollar cost averaging over a year or so. The remainder would be in CDs and dollar cost averaged into the total stock market index fund over a few years. I figure dividends would be taxed at a lower rate. Diversify entry points by dollar cost averaging over ? period of time.
joel2125 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-31-2018, 04:06 PM   #2
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Morton
Posts: 1,821
Quote:
Originally Posted by joel2125 View Post
Here is my scenario:
1) 59 years old and and plan to work for about two more years
2) Planning to sell my big house and move into my rental house for at least two years to avoid capital gains on the rental house in case we want to sell that.
3) May have about $1million from the sale of my house after debts are paid off.
4) All other money is in the 401k
5) I am in a high tax bracket
6) Target allocation for all investable money is 80/20 Total market index/ total bond index long term

Question: What to do with the $1mil?

My Ideas: $400k would need to be in other than equities to maintain 80/20 overall. I'm thinking quality dividend stocks like JNJ for the $400 k by dollar cost averaging over a year or so. The remainder would be in CDs and dollar cost averaged into the total stock market index fund over a few years. I figure dividends would be taxed at a lower rate. Diversify entry points by dollar cost averaging over ? period of time.
I am a little confused by this sentence:

$400k would need to be in other than equities to maintain 80/20 overall. I'm thinking quality dividend stocks like JNJ for the $400 k by dollar cost averaging over a year or so. JNJ is an equity and would not qualify as (other than equity). Maybe I am misunderstanding your meaning. Short term treasuries or laddered CDs would be non-equities. I would do 50/50 equities and fixed income. Then DCA over 24 months to reach your desired allocation(80/20 seems a little risky for my blood).

My 2 cents worth,

VW
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 07-31-2018, 04:33 PM   #3
Full time employment: Posting here.
 
Join Date: Mar 2014
Location: Dallas
Posts: 800
Prorating rules apply for re-living in the rental house. You can't take all gains tax free after 2 years. Congress fixed that loophole few years back. Sorry to break your hopes but better wake up now then after 2 years after the sale of the rental house.
pjigar is offline   Reply With Quote
investing proceeds from sale of house
Old 07-31-2018, 05:23 PM   #4
Dryer sheet aficionado
 
Join Date: Feb 2018
Posts: 47
investing proceeds from sale of house

Thanks for the replies. I have never been a bond investor as I have been 100% equities for the past 25 years and only a year ago gave the equities a haircut and bought a total bond market fund to total about 17% of the portfolio. I need to change my risk profile going into this retirement mode. I think of JNJ as more of an income stock than the growth stocks I have invested in over the years and you are of course right, it is still an equity! But being outside the 401k any income will be taxed during the calendar year and while CDs will be taxed at my income tax rate, dividends are treated more favorably tax wise. I guess I could put some money into municipal bonds for tax purposes. 50/50 may be a better call.

My CPA says that I can call my rental house my primary for 2 years and then the sale would avoid the capital gains I would pay if I sold it today. Perhaps I should clarify the issue once again with him, but that is what he told me after the new tax law was passed.

The time horizon on the money outside the 401k is greater than ten years.
joel2125 is offline   Reply With Quote
Old 07-31-2018, 05:42 PM   #5
Full time employment: Posting here.
 
Join Date: Mar 2014
Location: Dallas
Posts: 800
Quote:
Originally Posted by joel2125 View Post

My CPA says that I can call my rental house my primary for 2 years and then the sale would avoid the capital gains I would pay if I sold it today. Perhaps I should clarify the issue once again with him, but that is what he told me after the new tax law was passed.
Your CPA is miss informed. Do a quick google search.
pjigar is offline   Reply With Quote
Old 07-31-2018, 05:44 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 2,794
"My CPA says that I can call my rental house my primary for 2 years and then the sale would avoid the capital gains I would pay if I sold it today. Perhaps I should clarify the issue once again with him, but that is what he told me after the new tax law was passed."

You might need a new CPA. As I understand it, the proration did not go away with the new tax law. If I'm wrong, I would like to know, because I will become a serial two year mover!
Another Reader is offline   Reply With Quote
Old 07-31-2018, 05:50 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 2,794
To clarify, OP is not moving back into the rental. OP is moving into it for the first time. My understanding is that tax benefit disappeared a long time ago.
Another Reader is offline   Reply With Quote
Old 07-31-2018, 06:02 PM   #8
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,414
The recapture of depreciation also will have to be paid.
Dash man is offline   Reply With Quote
Old 07-31-2018, 07:51 PM   #9
Dryer sheet aficionado
 
Join Date: Feb 2018
Posts: 47
Glad I logged in. Always humbled by the collective intelligence of this group. I am meeting with my CPA this Thursday and will get back to you all. The tax savings are key to my selling decision. Thanks for the input!
joel2125 is offline   Reply With Quote
Old 07-31-2018, 09:21 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,124
I think you misunderstood your CPA. You may want to read this before you talk with him.

https://www.kitces.com/blog/limits-t...ins-exclusion/
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 08-01-2018, 08:05 AM   #11
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 3,666
"Income"/dividend stocks are still stocks. They got beat up plenty in the last bear market. To be 20% non-equity, for me it really needs to be not a stock of any kind.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 08-01-2018, 08:42 AM   #12
Recycles dryer sheets
 
Join Date: Aug 2017
Location: claremont
Posts: 337
Congrats on escaping the personal real estate trap. You may want to consider adding REIT's and MLP's to your mix. The only free lunch in investing is diversification and REIT's can provide that. You could also consider making mortgages, get well paid by those who have yet to figure it out (i consider it safer than bonds). Lending Club is a ho hum option.
Meanwhile, US is drifting toward 1/3 2/3 split with rest of world on total investable assets. Might want to lean int'l.
indiajust is offline   Reply With Quote
Old 08-01-2018, 09:06 AM   #13
Thinks s/he gets paid by the post
38Chevy454's Avatar
 
Join Date: Sep 2013
Location: Cincinnati, OH
Posts: 3,191
Another question is how soon do you need this money from your current house sale? Is it intended to reinvest into a new house for retirement? Used for living expenses to delay SS or pre-tax account withdrawals? Long term retirement money? Other?



If longer term horizon, you might take the tax-free portion of the current house sale money and invest into Roth. Then after paying the taxes due on taxable balance, use what investment is needed based on questions above.


My simple investment advice would be to go with 60/40 allocation mix type fund. That will help get you the fixed income allocation higher. Plus it is mindless easy, and the fund will do the work to maintain the allocation balance.


I was like you, near 100% equities for all my working and saving years. It has been an adjustment and attitude change to work on getting my fixed income portion up, I just checked today and I am at 79/21. My target is 70/30, so need to work on some rebalancing.
__________________
The advice we're giving you is invaluable, that's why it's free
Experience is a good teacher, but the tuition can get expensive real fast

Semi-Retired 7/1/16: working part-time (60%) for now [4/24/17 changed to 80%]
Retired Aug 2, 2017; age 53
38Chevy454 is offline   Reply With Quote
Old 08-01-2018, 09:15 AM   #14
Thinks s/he gets paid by the post
corn18's Avatar
 
Join Date: Aug 2015
Posts: 1,312
I guess you can hope JNJ doesn’t go the way of Enron or GE.
corn18 is offline   Reply With Quote
Old 08-01-2018, 10:19 AM   #15
Full time employment: Posting here.
hesperus's Avatar
 
Join Date: Aug 2013
Location: san juan mountains, co
Posts: 750
Quote:
Originally Posted by corn18 View Post
I guess you can hope JNJ doesn’t go the way of Enron or GE.
I would never put a huge chunk of change into one holding, even something that appears to be as 'safe' as JNJ.
hesperus is offline   Reply With Quote
Old 08-01-2018, 11:21 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,124
+1 foolish to take on so much concentration risk when it is so easy to diversify
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 08-01-2018, 11:25 AM   #17
Dryer sheet aficionado
 
Join Date: May 2016
Posts: 42
Well I'll be...they passed the pro rate exclusion part while I was on deployment and I missed it. Odd I have never come across it while reading since then, but I wasn't looking for it. I always had that live in the rental, reduce taxes as an option for later. Well I thought I did. One of the pains of this complicated tax code - keeping up to date. This site is great and now I really see the value in running an idea through it - preferably well before implementation.
king smoothie is offline   Reply With Quote
Old 08-03-2018, 01:10 PM   #18
Dryer sheet aficionado
 
Join Date: Feb 2018
Posts: 47
Thanks for all of your inputs. Turns out you all are correct. Because the house had been rented for 18 years the tax savings by moving in and calling it a primary pales in comparison to the lost rent. Basically it just doesn't work so that plan has been scrapped.

The long term plan is to move into my second home that we remodeled five years ago so I think i will just slug it out at work for two more years, sell the big house, leave the rental house rented and split for my house that we have used as a second home.

As for the money from the house sale I appreciate the dissent with respect to dividend stocks. They have been stretched a bit with the low bond yields and of course can get whacked in a bear market. Never have been a dividend investor although I have owned JNJ for 20 years or so. SO I think I will ladder some CDs and as they mature I will dollar cost average into either a 60/40 fund as suggested or allocate myself between a Vanguard Total Market Index and Vanguard Total Bond Market Fund, the later being less attractive during a rising interest rate cycle. Diversify the entry point by dollar cost averaging. Ultimately I have to put at least 50% of the funds at risk or the long term return is toast!
joel2125 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Best way to divert home sale proceeds to my young kids... NJ_Native FIRE and Money 32 06-16-2017 02:45 PM
AA/investment options for home sale net proceeds and not buying for 4-5 years? prototype FIRE and Money 10 04-02-2014 11:35 AM
What to do with house sale proceeds photoguy FIRE and Money 14 02-22-2014 08:40 AM
What to do with house proceeds? Blazerdude20 FIRE and Money 10 05-14-2013 08:42 AM
Short term stash for house proceeds kyounge1956 FIRE and Money 22 10-05-2012 11:03 PM

» Quick Links

 
All times are GMT -6. The time now is 12:50 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.