Buying a home is a long term investment — except when it’s not. Sometimes, you’re forced to quickly consider selling a house after one year or less because of a new job or a change in your financial status. At other times, you might just have buyer’s remorse, or find a different home you simply like more. And that’s okay.
Unfortunately, there’s a significant risk you’ll lose money. Buying a home involves a lot of upfront expenses — typically 3-5% of the purchase price. Selling is even pricier. Unless you work with a low commission real estate company like Clever Real Estate, you’ll likely pay around 10% in closing costs. Here’s what you need to know about selling a house after one year, and how to protect yourself financially if you do.
Can I sell my house after one year or less?
Yes, you can sell your house after one year or less — technically, you could even sell it the day you purchased it! But, if you’re able to wait until at least two years before selling, you’ll have a much better chance of coming out ahead financially vs. selling a house after one year.
That said, life gets in the way sometimes. If you’re facing unexpected changes to your job situation, family circumstances, or health, selling a house you just bought might be your only option.
When you absolutely need to sell a house after one year or less, it’s crucial to walk away with enough money that you can pay off your mortgage after covering your closing costs and other sale-related expenses.
One of the best ways to save money on your sale is by working with a company that charges lower real estate agent fees — one of your biggest costs when you sell.
Our friends at Clever help sellers like you save thousands by pre-negotiating listing fees of $3,000 (or just 1% on homes over $350,000) with top realtors from brokerages like Berkshire Hathaway and Keller Williams.
Is it bad to sell a house after one year or less?
Selling your home after owning it for a couple years, or even less than a single year, isn’t an ideal situation. There are a lot of factors stacked against you: capital gains taxes, closing costs, limited market appreciation, and negative consumer perception.
Selling a house after 1 year: Costs and drawbacks
Unless you need to move immediately due to unforeseen life 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 challenging 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 purchase price in closing costs plus your down payment. If you bought a house for $350,000, this could breakdown into the following.
|Buyer closing costs**||$14,000|
|Out of pocket costs||$35,000|
Then, you can expect to pay another 10% of the home price to sell. If you bought that $350,000 house and sold it a year later for $385,000 (a substantial 10% increase in value!), you would actually lose up to $11,000 overall after factoring in buying and selling closing costs.
|Cost to buy||$35,000|
|Estimated mortgage payoff*||$322,500|
|Seller closing costs (~10%)||$38,500|
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.
On the other hand, if you do manage to make money, you could have to pay hefty capital gains tax rates that will eat into any profits.
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.
Like other investments, your profits are taxed differently based on how long you owned your home before selling:
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.
Short-term capital gains 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.
Long-term capital gains tax rates range from 0-20%, so delaying your sale by a few extra months could save you thousands on any 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 Uncle Sam $16,000 in short-term capital gains tax, plus any state taxes.
Waiting until the one-year mark instead could save you $8,500 because you’d likely qualify for a lower long-term capital gains tax rate of 15%. Paying 15% instead of 32% would reduce your federal liability to $7,500.
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 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 capital gains entirely by living in a house for at least two years (or two of the past five years) before selling.
Under the current federal tax code, this qualifies you for a Section 121 exclusion, which allows you to exempt up to $250,000 (individual filers) or $500,000 (joint filers) of profit from your capital gains tax liability.
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 always recommend working with an experienced tax professional who can help you accurately determine your net profit and identify any tax exemptions.
✍️ Editor’s Note
To learn more about capital gains taxes, check out the following IRS resources:
Is it ever worth it to sell a house after one year or less?
Unless you’re a professional house flipper, it’s difficult to turn a profit when selling a house after one year or less. From a financial perspective, it’s typically not worth it to sell within a year of purchase. It simply takes a few years to build up enough equity to recoup your upfront costs and cover your selling expenses.
But, there’s more to life than money!
If you need to move for career-related reasons, your family circumstances have changed, or you can’t afford your mortgage and the stress is affecting your health and relationships, selling now may be the right decision. Or, if your local housing market is booming, your home value may appreciate more quickly, allowing you to break even sooner.
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:
- Make sure you can afford your selling costs
- Calculate your potential capital gains taxes
- Reduce your tax bill, if possible
- Save money when you sell
1. Make sure you can afford your selling costs
If you’re thinking about selling your house after one year or less, you first need to make sure you can afford to do so.
At closing, you’ll have to pay off your remaining mortgage balance, as well as your closing costs (usually around 10% of the sale price). If your expected sale price won’t cover these expenses, you must bring additional funds to closing.
✍️ Editor’s Note
If your mortgage includes a prepayment penalty, your lender may charge additional fees if you pay off your loan early. This could increase your selling costs by thousands of dollars. Ask your lender about prepayment penalties as early as possible, ideally before putting your home on the market.
Selling a house you just bought because you want to purchase a different one? You’ll also need enough money to cover your new down payment and closing costs. This could mean dipping into your savings if you don’t walk away from your sale with much cash.
2. 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)
As noted, your federal tax rate depends on your income and how long you owned the home — in general, you’ll pay less if you owned for at least a year before selling.
3. 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 capital gains tax bill 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 if you need to move immediately. 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. These 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 your house within six months of buying it and delaying the sale until after the one-year mark 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.
4. Save money when you sell
Whether you’re anticipating a hefty capital gains tax bill or just trying to avoid selling at a loss, saving on real estate commission ensures you walk away from your sale with as much cash as possible.
While realtors typically charge 3% of the sale price, low-fee brokerages offer commission rates as low as 1%. On a $500,000 home, that translates into $10,000 in savings!
The best discount companies, like Clever, provide the same level of service as a traditional agent. Our friends at Clever pre-negotiate 1% listing fees (or $3,000 on homes under $350,000) with local agents from top brokerages, including nationwide companies like Century 21. You’ll get the support of a full service agent for a fraction of the standard price.
What Companies Offer the Lowest Real Estate Commission Fees?: When you’re selling a home you just bought, every dollar counts. Check out our definitive ranking of the best discount services to compare savings, service quality, and pound-for-pound value to find the best option for you.
Seller Closing Costs: Everything You Need to Know: When you sell your house, you’ll likely pay around 10% of the sale price in closing costs. Here’s a complete guide to the fees you should expect to pay, as well as tips for saving money.
How Can I Sell My House Fast?: Need to sell your house as quickly as possible? Learn tips for selling fast AND for top dollar, and compare alternatives to a traditional sale on the open market.
FAQs about selling your house after a year or less
Can I sell my house after 6 months?
Yes — there's no restriction on selling your house within six months of buying it. However, selling that quickly doesn't give you much time to build equity, so you'll have an extremely hard time breaking even. If you want to keep as much money in your pocket as possible, working with a low commission real estate company could save you thousands.
What happens if I sell my house before 2 years?
If you sell your house before two years, you'll have to pay capital gains taxes on your profits. If you purchased the home less than a year ago, you'll be taxed at your ordinary income rate. If you wait until after a year before selling, you'll owe long-term capital gains taxes of 20% or less, depending on your household income. Unless you qualify for an exemption, you can't avoid paying Uncle Sam. But, you can offset your tax bill by selling with a low-fee brokerage and saving thousands on commission.
Can I sell my house after 2 years?
Absolutely! Selling your house after two years gives you time to build equity, especially when local home values are rising steadily. Plus, living in your house for two years before selling will likely exempt you from capital gains taxes on your profits. Want to save when you sell? Find the best 1% commission realtors near you.
How long do you have to live in a house before selling?
You can sell your house whenever you want — there's no restriction on how long you must live in it before you put it on the market. However, as a general rule, the longer you live in your house before selling, the greater your chances of maximizing your profit and avoiding capital gains taxes. Experts recommend you live in a house for five years or longer to break even. However, there's no set time limit on when you can sell your house – it's up to you!
How do I avoid capital gains tax when selling my house?
If you owned and lived in the house for two of the five years before the sale, then up to $250,000 of profit is tax-free. If you're married and file a joint return, the tax-free amount doubles to $500,000.
How much will I lose when I sell my house?
The typical real estate commission is 6% of your home's value. You can also look at other expenses like title insurance, seller concessions, loan payoff fees, transfer tax, and prepayment penalties. Then of course there's capital gains tax if you sell before two years. All together, you're looking at about 10% of the final sale price.