Selling a House After 1 Year or Less

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  Written by Thomas O'Shaughnessy

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  Edited by Josiah Wilmoth

Can I sell my house after one year? | Costs and drawbacks | If you just bought a home and want to sell, do this | Capital gains taxes | How to save when you sell

Most home sellers know that selling their house after one year or less isn’t generally a good financial decision — but sometimes a new job or change in financial status gets in the way.

Before you put your home on the market, you should speak to a real estate agent to determine your home’s value. Knowing whether your home has appreciated in value will help you figure out the financial ramifications of selling — and a realtor will help you create a plan to keep more of your home’s equity in your pocket.

» MORE: Get a free home valuation from a top local agent

Can I sell my house after one year or less?

Yes, you can sell your house after 1 year or less. Technically, you could even sell it on the same day you bought it.

But selling a house after 1 year can be costly. You’ll have to pay agent commissions, closing costs, capital gains taxes, and possibly mortgage prepayment penalties. If you haven’t built much equity, you might have to cover these costs out of pocket.

You can protect yourself financially by working with an experienced agent. Agents can help you price your home accurately, negotiate with buyers, sell sooner, and get top dollar for your home. 

To find top agents for free, use Clever Real Estate. Clever matches you with top local agents from brokerages like Berkshire Hathaway and Keller Williams. 

And when you work with Clever, you’ll pay just 1.5% in listing fees instead of the traditional 3% commission rate. That’s thousands of dollars back in your pocket that will lessen the financial burden of selling your home quickly.

Selling a house after 1 year: Costs and drawbacks

Unless you need to move immediately due to unforeseen circumstances, selling a house within a year of purchase could be a poor financial decision. When you sell a house you just bought, you’ll have a hard time breaking even — even if your home value has gone way up.

Although homes are generally a good investment in the long run, they’re expensive to buy and sell. When you buy, you usually pay around 3–5% of the total sale price in closing costs, plus your down payment. If you bought a house for $350,000, this could break down into the following.

You can expect to pay another 10% of the home price to sell. If you bought that house at $350,000 and sold it a year later for $385,000 (a substantial 10% increase in value), you’d lose up to $11,000 overall after factoring in buying and selling closing costs. 

Here’s how:

Although you’d lose $11,000 overall in this example, you’d still net enough to pay off your mortgage and walk away with about $24,000 in cash. If your home value hasn’t changed much, though, you may not make enough to cover your mortgage payoff and closing costs, forcing you to dip into savings.

Let’s say you sell that same house for $355,000, or about 1.5% more than you paid for it. Not only would you lose an astonishing $44,500, but you wouldn’t even recoup your full down payment. You’d need to bring a $3,000 check to your closing just to cover selling costs.

If you do manage to make money on your sale, you might have to pay hefty taxes that will eat into your profits.

» MORE: How much are closing costs for buyers and sellers?

What to do if you just bought a house but want to sell

If you just bought a house but want to sell, you should:

1. Figure out what your home is worth
2. Make sure you can afford your selling costs
3. Calculate your potential capital gains taxes
4. Reduce your tax bill, if possible
5. Save money on realtor fees when you sell

» Skip to the end: Is it worth it to sell a house after one year?

1. Figure out what your home is worth

If you’re thinking about selling your house after one year or less, you first need to determine your home’s fair market value to figure out whether you’ll make or lose money on the sale.

The best way to find out your home’s value is by speaking with a licensed real estate agent. They’ll perform a comparative market analysis to give you an accurate idea of your home’s value.

💰 Connect with a top local agent, get a free home valuation!

2. Make sure you can afford your selling costs

Next, you have to make sure you can afford to sell your home. At closing, you’ll have to pay off your remaining mortgage balance, as well as all other closing costs (usually around 10% of the sale price). If your expected sale price won’t cover these expenses, you have to bring additional funds to closing.

If you’re going to buy another house right after you sell, you’ll also need enough money to cover your new down payment and buyer closing costs. This could mean dipping into your savings if you don’t walk away from your sale with much cash.

» LEARN: How much does it cost to sell a house?

3. Calculate your potential capital gains tax liability

When you sell your home for a profit after less than two years of owning it, you could be liable for capital gains tax. 

Calculate your profit by subtracting the following from your estimated sale price:

• Original purchase price (including closing costs)
• Selling expenses (including closing costs)
• Home improvement costs (excluding ordinary repairs)

Your federal tax rate depends on your income and how long you owned the home. In general, you’ll pay less if you owned it for at least a year before selling.

» JUMP TO: What are capital gains taxes?

4. Reduce your tax bill

Capital gains tax can take a huge bite out of your home sale profits. Luckily, there are ways to reduce your liability — or potentially avoid capital gains tax altogether.

Delay your move until you’ve lived in your house for two years

If you’re facing a huge bill for capital gains tax and don’t need to sell immediately, it may be worth waiting until you’ve lived in the house for two years. This allows you to shield up to $250,000 (if you’re single) or $500,000 (if you’re married and file joint tax returns) in profit from tax liability.

Don’t sell until you qualify for lower tax rates

Waiting until you’ve lived in your house for two years may not be feasible. But if it’s been less than a year since you bought it, waiting a few more months before selling could cut your tax bill significantly.

When you sell after less than a year of owning a home, your profit is a short-term capital gain and taxed at ordinary income rates. Once you’ve owned the house for at least 12 months — even if you don’t live there for the full year —  your sale qualifies for long-term capital gains tax rates. Long-term rates are typically much lower for most sellers.

If you’re in a higher tax bracket and expect to turn a major profit, the difference between selling within six months vs. selling after one year could be tens of thousands of dollars.

Check if you qualify for a partial exemption

When you have to sell your house due to a major, unforeseen event like a job loss, health complications, or divorce, part of your profit may be exempt from capital gains tax — even if you sell within two years of purchase.

Always work with a tax professional to find the tax exemptions you qualify for.

5. Save money on realtor fees when you sell

Saving on realtor fees ensures you walk away from your sale with as much cash as possible. These savings could help you avoid paying closing costs out of pocket and lower the burden of capital gains tax.

To find an agent with lower rates, we recommend working with Clever Real Estate. Clever pre-negotiates a low 1.5% listing fee with top-rated real estate agents, saving you thousands compared with the 3% rate most realtors charge.

💰 SAVE: Sell with a top local agent for a low 1.5% listing fee!

What are capital gains taxes on homes?

If you’re selling your house after a year or less and make money on the sale, you may have to pay capital gain taxes on that profit. How much those taxes will cost depends on how long you owned the home, your income, filing status, any exemptions, and other factors.

Here’s how your profits are taxed differently based on how long you owned your home before selling:

• Less than a year: Earnings are considered short-term capital gains. These are taxed as ordinary income, 10–37%.
• One year or more: Earnings are considered long-term capital gains. The tax is 0%, 15%, or 20%.
• Two years or more: You can qualify for a capital gains tax exemption, up to $250,000 (individual filers) or $500,000 (joint filers).

Can you avoid capital gains tax when selling a house you just bought?

Even if you’re selling your house within two years of purchasing it, you could qualify for a tax liability exclusion for the following reasons: 

• Career-related relocation
• Job loss
• Divorce or legal separation
• Death in your household
• Health-related considerations
• Your home was destroyed or condemned
• Other unforeseeable events

We recommend working with an experienced tax professional who can help you accurately determine your net profit and identify any tax exemptions.

Selling after less than a year 

According to IRS guidelines, selling a house within one year of purchase makes you liable for short-term capital gains taxes on any profit. These are taxed as ordinary income, so you’ll pay the same federal tax rate on these profits — 10–37%, depending on your household income — as your wages and other earnings.

Selling after one year

If you own your house for at least one year before selling it, your profits will be taxed as long-term capital gains, which have lower tax rates than short-term capital gains.

Tax rates for long-term capital gains range from 0–20%, so delaying your sale by a few extra months could save you thousands on taxes.

For example, say you sell a house after six months and make a $50,000 profit. If you fall into the 32% income tax bracket, you could owe $16,000 in short-term capital gains tax, plus any state taxes. 

If you wait until the one-year mark instead, you’d likely qualify for a long-term capital gains tax rate of 15%. Paying 15% instead of 32% would save you $8,500.

Want to save even more when you sell after a year? Selling with a low commission real estate company like Clever can slash your listing fees by thousands of dollars.

Clever Real Estate pre-negotiates steep discounts with traditional realtors, so you’ll get all the services and support you expect — but pay a fraction of the price.

Selling after two years

You can usually avoid paying capital gains taxes entirely by living in a house for at least two years (or two of the past five years) before selling your home. 

Under the current federal tax code, you’d qualify for a Section 121 exclusion, which allows you a tax exemption of up to $250,000 (individual filers) or $500,000 (joint filers).

Is it worth it to sell a house after one year?

For most home sellers, it’s a good idea to wait a few years before selling your house. This gives you enough time to build equity in your home, allowing you to recoup your up-front costs and cover your selling expenses.

That said, sometimes you don’t have another choice. Selling your house after a year or less may be the right decision if your job changed, your family circumstances changed, or you can’t afford your mortgage and the stress is affecting your health and relationships.

It can also make sense to sell when your local housing market is booming. If your home has quickly appreciated in value, you may make a profit when you sell, covering your closing costs and allowing you to break even. You should consult a realtor to find out whether you’ll be affected by capital gains taxes and to ensure you make the right decision.

FAQ about selling your house after a year or less

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