What If I Sell My House After 2 Years?

Talia Lee-
July 04, 2024

How soon after buying a house can you turn around and sell it? Technically, you can list it the same day you get the keys — but just because you can doesn’t mean you should.

Generally, the longer you keep a home, the better. You’ll build more equity and allow the property time to appreciate in value. However, life can be unpredictable, and sometimes selling quickly becomes necessary. Selling your house after owning it for less than a year is typically not advisable from a financial standpoint. Does waiting at least two years make more financial sense? Let’s explore.

Of course, you can sell your house soon after buying it. However, ideally, you’d want to stay in your home long enough to avoid losing money on the transaction.

In the recent seller’s market, high home appreciation rates have made it relatively easy to turn a profit within two years of homeownership in many parts of the country. But with interest rates still high and prices near record levels, that might not be the case for much longer. If you need to buy a new home after selling, the current market could mean purchasing at a higher rate and price, which might eat up your profits.

Remember, selling a house comes with significant closing costs. According to ClosingCorp, the average closing costs for a single-family home in the U.S. in 2021 were nearly $7,000. While sellers don’t shoulder the full amount, it still takes a substantial bite out of your profits.

You’ll also need to factor in real estate commissions (typically 2.5 to 3 percent of the sale price to your real estate agent, and potentially to the buyer’s agent as well) and moving costs. If your home’s value has stagnated or dropped since you bought it, you could find yourself underwater on your mortgage.

All of which is to say, it’s best to stay put in your home long enough to recoup these costs. If that happens in two years, great! If not, it may be more prudent to hold off on selling until the math adds up.

When considering whether to sell, it’s important to factor in the potential tax implications. Selling before the two-year mark can be costly.

“Staying in your home long enough to reach 24 months can save you a significant amount of money on taxes,” explains Jeremy Babener, a tax attorney and founder of Structured Consulting in Portland, Oregon.

The key consideration is capital gains taxes. Living in your home for two full years qualifies you for the IRS’s Principal Residence Exclusion. This allows you to deduct up to $250,000 in sale proceeds if you’re filing as a single taxpayer, and up to $500,000 if you’re married and filing jointly.

“If you can’t reach 24 months, aim to stay at least 12 months,” advises Babener. “Selling your home and making a profit less than a year after buying it would subject you to short-term capital gains taxes.”

To avoid financial loss, it’s advisable to refrain from selling your home until you can recoup enough to cover your closing and transaction costs. Typically, this waiting period is around five years, considering factors like your purchase price, closing expenses, appreciation rate, and prevailing market conditions. If waiting five years isn’t feasible, aiming for at least two years can help you avoid long-term capital gains taxes.

Depending on your circumstances, there may be strategies to extend your stay in the home until you reach that two-year mark. For instance, if relocation is prompting the sale, negotiating temporary remote work arrangements with your employer could buy you more time. Alternatively, if mortgage payments are the issue, exploring options such as forbearance, loan modification, or assistance programs—both national and local—might provide the financial relief needed to maintain ownership long enough to sell more profitably.

Your home represents more than just shelter; it’s also a significant investment. Maximizing your return on this investment requires careful consideration, especially when contemplating selling after only two years. Such a short ownership period may not yield a profit, particularly if your home’s appreciation hasn’t outpaced what you paid and what remains on your mortgage. When the time comes to sell, partnering with a knowledgeable local real estate agent can help you navigate these complexities and ensure you’re optimizing your potential for profit.

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