Congratulations! You’ve sold your land and have a good chunk of money in your pocket. But now what? The majority of money experts will advise you to reinvest the proceeds from the sale of land. But, first, you need to consider the tax angle because the sale of land is a taxable event. Then you need to figure out the best places to invest your money. Read on to discover 5 ways to reinvest your money when selling your land in .
1. Consider the Taxes
When reinvesting money from selling your land in , the first step is thinking about how to decrease the tax burden. There are two major ways to do this . . .
First, if you made a profit, instead of paying ordinary income tax, you could opt to pay the tax rate for long-term capital gains. “This will save you money because capital gains tax rates are lower than regular income taxes – 15 percent for most taxpayers, 20 percent for some high earners and zero percent for certain low-income taxpayers. To qualify for these rates, you must incur a net long-term capital gain for the year from all of your transactions, including the sale of your land. If you sell at a loss and want to classify it as long-term rather than short-term, you must have owned the land for at least a year before you sold it.”
If you incurred a loss on selling your land, another option is to “write off your capital loss to the extent that you incurred a net capital loss for the year. You can exclude up to $3,000 per year in capital losses if you are filing married and jointly, or $1,500 if you are married and filing separately. If your capital loss exceeded the applicable limit, you can carry forward the excess loss to future tax years.”
After selling your land, it’s a good idea to consult your agent about the various tax options. To discover more, just call 866-593-7012.
2. Pay Down Debt and/or Invest in Stocks
Now, when it comes to actually reinvesting the money made from selling your land, there are the two tried-and-true options: paying down debt and/or investing in stocks.
Paying down debt may not seem like an investment on the face of it, but it actually is. If, for example, you pay off a credit card or an auto loan, you’re no longer paying interest on the debts. The net result is that without the interest, you are in fact making money because you have less money going out.
And then there’s the old standby investment: stocks. Right now the market is up, but it remains volatile. So it may not be a good idea to put too many eggs in that investment basket. Still, stocks can serve well as one ingredient in a wide investment strategy.
3. Invest in Municipal Bonds
You might also think about investing in municipal bonds when selling your land in .
“A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures, including the construction of highways, bridges or schools. They can be thought of as loans that investors make to local governments.”
The great thing about municipal bonds is that they “are exempt from federal taxes and most state and local taxes.” This makes “them especially attractive to people in high-income tax brackets,” and that may be you after selling your land.
4. Consider College Savings
If you have kids who will someday attend college, another good reinvestment possibility after selling your land is college savings. One of the most common instruments used for this purpose is a 529 Plan.
“A 529 college savings plan is a state-sponsored investment plan that enables you to save money for a beneficiary and pay for education expenses.” The two types of 529 Plans are the tax advantage plan and the prepaid plan. And the benefits are . . .
- Provides a dedicated way to save for your child’s/children’s education expenses
- Allows you to make tax-free withdrawals to pay for eligible education-related expenses
- Typically has a low minimum contribution amount
5.Try Real Estate Crowdfunding
Another possibility for reinvesting money made after selling your land in is real estate crowdfunding. We’re all familiar with crowdfunding, but this is a new twist.
“Real estate crowdfunding works the same way as many other crowdfunding ventures: Investors pool their money to fund a project, a product or a company in the hopes that there will be a future profit. In many cases, investing in real estate has a high financial barrier to entry, like having a down payment saved. But some real estate crowdfunding platforms are working to lower that threshold so you can invest with as little as $500. In most cases, real estate crowdfunding platforms direct investors’ money into real estate investment trusts or similar investments.”
The great thing about this kind of investment is that it offers the potential for purely passive investment income with high dividends and diversification. The downsides, though, are that the fees are fairly high, such illiquid assets are more difficult to sell off, and the platforms haven’t really been around long enough to be fully tested and trusted.
First Things First Though
Certainly, it’s good to know how to reinvest after selling land. But, first, you have to sell your land. And in today’s economic climate and especially since the advent of COVID, selling land nearly demands the services of a good agent. So if you’re ready to take that first step toward selling your land in , contact us today at 866-593-7012.