A couple’s $100,000 home sale proceeds were thrown into financial chaos when they used the money to buy a car instead of paying down debt.
Logan called “The Ramsey Show” from Lexington, Ky., seeking clarification on the tax implications of a recent home sale. He said he and his wife bought the house for $315,000 and later sold it for $415,000.
He said the couple walked away with about $77,000 after expenses, but tensions heightened when $22,000 of the proceeds went toward buying a car for his wife, while he still owed $37,500 on his truck — prompting a blunt response from the personal finance expert Dave Ramsey.
“What do you smoke?” Ramsay asked, interrupting Logan as he outlined what the money would be used for.
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Logan said he and his wife got married in April 2022 after paying off their student loans and had about $30,000 in savings. They rented for a year and then purchased a 4,200-square-foot home from family friends at a discount, even though they knew it would exceed their budget.
With no down payment and an interest rate of 6.25%, they will be living paycheck to paycheck in 2024, Logan said. That November, they decided to sell.
The house was under contract within seven days. They walked away with about $77,000 after expenses, but also racked up about $10,000 in credit card debt from updates they made to prepare the home for sale.
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Then the conversation turned to taxes. Logan said he didn’t know how much he owed on the sale. Ramsey responded that because the home was not held long enough, the profit did not qualify for capital gains treatment.
“This is ordinary income,” Ramsey said, adding that after selling expenses and allowed improvements, the tax bill could be closer to $20,000.
He urged Logan to stop major financial moves and meet with a tax professional to calculate the exact amount.
“You went and bought another car,” Ramsey said. “And you haven’t reached a settlement with the IRS.”
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Co-hosts as Ramsay pressures Logan to sell vehicle John Deloney Joined the discussion. “You get a ticket, man, and you’re blowing your nose in there,” he said of the use of proceeds from home sales.