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Homeowners with equity who are planning to sell face an important financial decision: What to do with their proceeds.
While many roll those dollars directly into their next real estate purchase, others opt to downsize to less expensive digs or rent temporarily while they test the waters in a new locale — leaving them with a pile of cash and plenty of options.
Depending on their financial picture and future goals, they can take their proceeds and:
“Sellers have a variety of options to put proceeds to work,” said Greg Hammond, a financial professional with Hammond Iles Wealth Advisors in Wethersfield, Connecticut. “Many find that downsizing can eliminate debt or a mortgage they may have now. Those who receive proceeds and do not need the money today can invest for the future, which may help them create a legacy for their family or a favorite charity. Or, they can use the funds to address other concerns, such as long-term care. As many of our clients are aging, we are looking at life insurance policies with a long-term care rider that can provide peace of mind while creating a financial legacy.”
Housing market outlook
Home prices across the country hit record highs over the last few years, driven in part by tight inventory, work-from-home flexibility, and the exodus from major cities during the Covid-19 crisis. Rising mortgage rates in 2024 and 2025 temporarily discouraged homebuyers from taking on new debt, but activity in 2026 appears to be on the rise once again as softening interest rates increase affordability.
The National Association of Realtors projects existing home sales will accelerate by roughly 14 percent in 2026 with home prices climbing 4 percent, supported by steady demand and improved market stability. (Learn more: Tax considerations for retiring out of state)
Lawrence Yun, chief economist for the National Association of Realtors, noted in a published forecast that 2026 “is really the year that we will see a measurable increase in sales. Home prices nationwide are in no danger of declining."1 (Related: Real estate vs. annuities)
Those who own property in the most coveted suburbs, where housing prices have soared, are in some cases cashing in as they relocate to destinations where they can live for less and work from home.
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Capital gains exclusions
Favorable tax laws may permit home sellers to keep more of their proceeds than they think.
The Internal Revenue Service allows married homeowners who file jointly to exclude up to $500,000 of proceeds from capital gains. ($250,000 for single homeowners.) If you purchased your home for $300,000 and sold it 12 years later for $500,000, the entire $200,000 gain would be tax free as long as you are eligible.
To qualify for the exclusion, you must have used the home as your primary residence, lived in it for at least two out of the last five years, and owned the property for at least two out of the last five years, among other criteria. (Related: Using real estate in the transfer of wealth)
Those who sell in less than a year generally will owe short-term capital gains tax, which is equal to your ordinary income tax rate, while those who owned their property for more than a year but are not eligible for the capital gains exclusion will generally owe long-term capital gains, which cap out at 20 percent. (Learn more: Managing capital gains tax bites)
Regardless of how much you take home in proceeds, however, you must still decide how and when to put that money back to work.
Park it in savings: The safest place to put money from house sale
One option is to keep that money in savings, which is the safest choice from a short-term liquidity and volatility perspective for those who are determining next steps, said Chad Tourin, a financial professional with Coastal Wealth in Ft. Lauderdale, Florida.
“If you might need to tap into the sales proceeds within a few years, you would want those funds to be accessible without fees or penalties,” he said. “The treatment of proceeds from the sale of real estate should take into account many of the same factors as other windfalls. This includes liquidity needs. If you do not have adequate savings built up and you may need to access the funds, it would be important to keep the proceeds in a liquid account.”
Just be sure you segregate those savings into a “do not touch” account, lest you fritter away your proceeds on frivolous wants versus needs. Windfalls can be an excellent way to build wealth, but only if you use those dollars with intent.
Remember, too, that a large sum of money sitting in savings for too long presents a risk of its own. With an average interest rate of less than 1 percent, savings accounts won’t keep pace with inflation, which robs you of purchasing power over time.
For that reason, Tourin said he recommends using higher-yield cash equivalent accounts.
“After you’ve accumulated three months’ worth of emergency funds, at a minimum, you can put the proceeds to work for you in short-term vehicles, such as certificates of deposit or money market accounts, which provide a slightly higher interest with minimal risk and liquidity,” he said.
Pay down debt
Nothing creates financial drag like debt. Car loans, student loans, and credit card balances all limit our ability to meet other financial goals, like saving for a comfortable retirement, college savings for our children, or that beach house you can’t stop daydreaming about.
The average balance for American families with credit card debt reached $6,735 in 2025, according to Experian credit rating agency. Including private student loans, Education Data Initiative reports that figure may be as high as $42,673 per borrower. 2,3
When helping clients pare down debt, Tourin said he first looks at the type of debt involved, whether interest on that debt is potentially tax deductible (mortgages and student loans), and the interest rate. (Learn more: Good debt versus bad debt)
“This is a vital factor in the analysis of determining whether to pay down debt, because if you can earn a greater rate of return [by investing those proceeds] than the interest rate you are paying on that debt, it may make sense to put your money to work for you elsewhere,” he said.
Hammond agrees, but adds that the emotional return on being debt free can potentially outweigh the benefit of wealth accumulation.
“Investing to get a better financial result over time when it causes you to lose sleep or have anxiety about your debt does not make sense,” he said. “Carrying debt, even if it makes financial sense, that impedes your ability to live a life of freedom and fulfillment is not worth it.”
Invest for growth
If you prioritize wealth accumulation, do not require liquidity (immediate access to your cash), and are willing to assume greater risk, you might opt to invest those proceeds instead.
A hypothetical $75,000 investment in a taxable portfolio earning 7 percent annually would be worth an estimated $148,000 in 10 years, according to the investment calculator on Calculator.net. An investment of $150,000 would be worth $295,000 with the same parameters.4
As an investor, your asset allocation determines your level of risk. If your portfolio is composed primarily of stocks (or equities), the potential return on investment may be higher, but it is also likely to be more volatile than a blended portfolio that incorporates fixed income (or bonds). It may also be subject to bigger losses.
(Learn more: Understanding asset allocation and diversification)
By contrast, an investment portfolio composed entirely of high-quality fixed-income securities involves less risk, but also offers the least upside potential. For the most conservative investors who are looking for asset preservation and slightly higher returns than they might receive from a traditional savings account, putting their proceeds into a fixed-income fund might make sense. (Learn more: Understanding the basics of investing)
Longer time horizons may permit you to assume greater risk because you have years ahead to ride out market swings. But Tourin said any investment strategy must factor in your tolerance for risk.
“Everyone has different levels of risk tolerance,” he said. “Those with a higher tolerance are more likely to invest sales proceeds for growth and those with lower levels of risk tolerance should utilize more conservative strategies.”
A financial professional can help you create an asset allocation that is right for you.
Supplement your retirement
Many homeowners with appreciated property sell with the sole intent of liberating those proceeds to supplement their retirement savings, especially empty nesters and new retirees.
“Once someone is in retirement, or even as they are approaching retirement, their concerns typically shift from total assets and rate of return to a concern over how much income their assets are going to generate on a yearly basis,” said Tourin. “This is tied to arguably the biggest concern a retiree has, which is the fear of running out of money.”
Longevity risk can be alleviated, or at least mitigated, by using your proceeds to purchase a guaranteed income annuity, he said.
“These plans can even be designed to provide guaranteed income for life for both spouses and so, as long as there isn’t a liquidity need, an income annuity can be a great strategy to put your sale proceeds to work,” said Tourin. (Learn more: How do annuities work?)
Permanent life insurance, which is primarily designed to provide a death benefit, can also play a valuable role in retirement planning, providing tax-deferred growth, with potential for tax-free access to cash value through policy loans from which you can draw when your investment portfolio returns are down, and estate planning benefits.5
MassMutual’s retirement calculator can help you determine whether you are on track for your retirement savings goal.
Real estate proceeds can also potentially be used to purchase long-term care insurance coverage, which may help protect your savings and preserve your estate for your heirs. Some life insurance companies offer whole life insurance policies with riders that provide long-term care benefits.
Putting your proceeds to good use
If you’re not planning to roll your real estate proceeds into the next property when you sell your home, you must decide where to put your proceeds.
Depending on your financial circumstances, it might make sense to pay down debt, invest for growth, or supplement your retirement. You might also consider purchasing products to protect yourself and your loved ones, including annuities, life insurance, or long-term care coverage.
By working closely with a trusted financial professional, you may be better positioned to create a plan that helps you reach your goals. (Learn more: 7 things financial planning does for you)
“Just like using a GPS system in your car, the first step is to determine the destination,” said Hammond. “From there, we can look at where you are and how you can create a clear path from where you are to where you want to go. As with a GPS, my role as a financial coach is not only to provide the path, but to point out the obstacles and challenges that you can see or may not see along the route. Based on the path and destination, we can then provide guidance as to the best way to invest the funds, whether it is conservative or growth oriented.”
Since 1851, MassMutual has been focused on helping people secure their financial future and protect the ones they love. That mission is why we have over 7,500 financial professionals to assist you on your journey through insurance, investing, retirement planning, estate management, and more. You can find a MassMutual professional with this tool or you can let us know you’d like to talk to one and we’ll have one of our financial professionals can contact you.
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Frequently Asked Questions:
Q: How much of my home sale profit is tax-free?
A: Under current IRS rules, you can exclude up to $250,000 of capital gains if you're single, or up to $500,000 if you're married filing jointly. To qualify, you must have owned and lived in the home as your primary residence for at least 2 of the 5 years before the sale. These don't need to be consecutive years — cumulative months count. You can only use this exclusion once every two years, and it applies only to your primary residence, not investment properties or vacation homes.
Q: What are the smartest ways to use my house sale proceeds?
A: Most financial experts recommend a balanced approach across four key strategies. Homeowners who do not plan to roll the proceeds into their next house, can use their proceeds to build an emergency fund, pay down high-interest debt, invest for possible growth, and supplement their retirement. The right mix depends on your age, existing savings, debt levels, and timeline. Many homeowners benefit from allocating proceeds across multiple goals rather than putting everything in one place.
Q: Should I wait for a better market before selling my home?
A: Market timing is challenging even for experts. Instead of trying to predict housing cycles, focus on your personal circumstances: Do you need to relocate for work or family? Are you downsizing for retirement? Are maintenance costs becoming burdensome? If your lifestyle requires a change, don't let market speculation delay important decisions. What matters most is having a solid plan for your proceeds once you do sell — that's what creates long-term financial success.
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This article was originally published in March 2020. It has been updated.
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1 National Association of Realtors, “NAR Forecast: Home Sales Expected to Jump 14% in 2026,” Nov. 14, 2025.
2 Experian, “Average American Debt by Age, US State, Credit Score and Type in 2025,” Nov. 17, 2025.
3 Education Data Initiative, “Average Student Loan Debt,” Aug. 15, 2025.
4 Example is hypothetical and not representative of the performance of any particular product.
5 Borrowing against cash value increases the chances that the policy will lapse, reduces the cash value and death benefit, and may result in a tax bill if the policy terminates before the death of the insured.
