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Key takeaways
- It is possible to sell a house after owning it for just two years, but it's generally not wise financially.
- Selling a house comes with significant closing costs, as well as real estate commissions and moving expenses.
- Owning and living in a home for at least two years can qualify you for tax exemptions on capital gains.
How soon after buying a house can you turn around and sell it? Technically, you can put it back on the market the same day you get the keys — but just because you can doesn’t mean you should.
Typically, the longer you hang on to a home, the better. You’ll earn more equity and it will have time to appreciate in value. But life can be unpredictable, and sometimes you just need to sell and move on. Selling your house after owning it less than a year is generally not a great idea financially. Does waiting at least two years make more financial sense? Let’s find out.
Can I sell my house after 2 years?
Of course you can. But, in an ideal world, you’d want to stay in your home long enough not to lose money on the transaction.
In the seller’s market we’ve seen recently, high home appreciation rates have made it fairly easy to turn a profit in two years of homeownership in many parts of the country. But with interest rates still high and prices near record levels, that may not be the case for much longer: If you’ll need to buy a new home after you sell, the current market could mean buying at a higher rate than you currently have, and at a price that eats up the profits on your sale.
Keep in mind that selling a house isn’t free — it comes with significant closing costs. According to data from ClosingCorp, for a single-family home in the U.S. in 2021, closing costs averaged nearly $7,000. While that full amount would not be shouldered by the seller alone, it still takes a big bite out of your profits.
You’ll 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 your buyer’s agent as well) and moving costs too. And if your home’s value has stagnated — or worse, dropped — since you bought it, you could potentially find yourself underwater on your mortgage.
All of which is to say, it’s best to stay put in your home for 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.
Tax implications of selling a house after 2 years
When deciding whether to sell, you’ll want to consider the potential tax implications as well. Selling before the two-year mark can be costly.
“Staying long enough to hit 24 months can save you a significant amount of money on taxes,” says Jeremy Babener, a tax attorney and founder of Structured Consulting in Portland, Oregon.
It’s all about capital gains taxes. Owning and living in a home for two full years can qualify you for the IRS’s Principal Residence Exclusion. This allows you to deduct up to $250,000 in sale proceeds if you’re a single filer, and up to $500,000 if you are married and filing jointly.
“If you can’t make it to 24 months, try to stay at least 12,” says Babener. “Short-term capital gains taxes would apply if you sell your home and make a profit less than a year after buying it.”
How long should I ideally wait?
To avoid losing money, it’s best not to sell your home until you can make back enough to cover your closing and transaction costs. The waiting time required for that can vary depending on a lot of factors — the price you paid, your closing costs, the rate of appreciation, the prevailing market conditions — but it’s typically about five years. If you can’t wait five years, try to make it to at least two to avoid long-term capital gains taxes.
Depending on your situation, you may have options to help you stay in your home long enough to hit that two-year mark. If you’re selling because of a job offer in another city, for example, you could try to negotiate a temporary remote-work situation. And if you’re selling because the mortgage payments are too much of a burden, there are also options available to help you get caught up. Look into forbearance, loan modification and national or local assistance funds that might help you get back on track with payments and stay in your home, at least for long enough to sell it more safely.
Bottom line
Your home is more than just the roof over your head. It’s an investment, and you want to get the largest return on that investment that you can. Selling a house after just two years can cost you money, rather than making you money — be aware of your home’s appreciation in relation to how much you paid for it, and how much you owe on the mortgage. And when you do decide to sell, work with an experienced local real estate agent to make sure you’re maximizing your profit potential.
FAQs
It is possible to sell a house after owning it for just two years, but it's generally not wise financially. Selling a house comes with significant closing costs, as well as real estate commissions and moving expenses.
Do you have to pay capital gains after 2 years? ›
If you've owned and occupied your property for at least 2 of the last 5 years, you can avoid paying capital gains taxes on the first $250,000 for single-filers and $500,000 for married people filing jointly. Visit the IRS website to review additional rules that may help you qualify for the capital gains tax exemption.
Should I sell now or wait until 2024? ›
Best Time to Sell Your House for a Higher Price
April, June, and July are the best months to sell your house in California. The median sale price of houses in June 2023, was $796,400, which is expected to grow more in 2024. However, cities like Arcadia and San Mateo follow an upward trend throughout the year.
What is the average profit when selling a house? ›
This amount can vary greatly from one sale to the next and depends a lot on how much you still owe on your mortgage. In 2023, the typical U.S. home seller made a profit of $121,000, according to a recent report by ATTOM Data Solutions. In 2023, the typical U.S. home seller made a profit of $121,000.
How to avoid capital gains tax on a house? ›
You can avoid capital gains tax when you sell your primary residence by buying another house and using the 121 home sale exclusion. In addition, the 1031 like-kind exchange allows investors to defer taxes when they reinvest the proceeds from the sale of an investment property into another investment property.
What are the exceptions to the 2 year home sale exclusion? ›
You, your spouse, a co-owner of the home, or anyone else for whom the home was their residence died, got divorced or legally separated (or were issued a separate decree to pay support to the other spouse), gave birth to two or more children from the same pregnancy, became eligible for unemployment compensation, or were ...
Why wait 2 years to sell a house? ›
It's all about capital gains taxes. Owning and living in a home for two full years can qualify you for the IRS's Principal Residence Exclusion. This allows you to deduct up to $250,000 in sale proceeds if you're a single filer, and up to $500,000 if you are married and filing jointly.
Will US house prices go down in 2024? ›
No — experts do not think there is a housing market crash looming in 2024. Lending standards are much more strict now than they were before the Great Recession, and with low inventory and high demand both continuing, the housing market is not likely to enter a recession in the coming year.
Will market improve in 2024? ›
The S&P 500 generated an impressive 26.29% total return in 2023, rebounding from an 18.11% setback in 2022. Heading into 2024, investors are optimistic the same macroeconomic tailwinds that fueled the stock market's 2023 rally will propel the S&P 500 to new all-time highs in 2024.
What is the best month to sell a house? ›
Here's how each month of the year ranked for the best time to sell a house. The highest-earning months are, in ranking order, May, June, April and March. Just over 18 million purchase transactions took place during this period, according to ATTOM.
10 tips to sell your home for more money
- Find a trusted real estate agent.
- Invest in value-adding improvements.
- Up your curb appeal.
- Get a pre-listing inspection.
- Highlight with pro photos.
- Stage your home.
- Set the right asking price.
- Remove personal items.
The cost to sell your California home will depend a lot on the sale price and the condition of the home. While your total out-of-pocket costs will vary based on your situation, you should expect 9.81% or more of your home's final sale price to go towards selling costs.
How much should you spend on a house to sell it? ›
Plan to spend at least 10% of the home price in selling costs, as well as what you need to pay off your mortgage. Margarette Burnette is a NerdWallet authority on savings, who has been writing about bank accounts since before the Great Recession.
Do I pay taxes to the IRS when I sell my house? ›
Taxpayers who don't qualify to exclude all of the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return.
At what age do you not pay capital gains? ›
Capital Gains Tax for People Over 65. For individuals over 65, capital gains tax applies at 0% for long-term gains on assets held over a year and 15% for short-term gains under a year. Despite age, the IRS determines tax based on asset sale profits, with no special breaks for those 65 and older.
Is money from the sale of a house considered income? ›
If you owned and lived in the home for a total of two of the five years before the sale, then up to $250,000 of profit is tax-free (or up to $500,000 if you are married and file a joint return). If your profit exceeds the $250,000 or $500,000 limit, the excess is typically reported as a capital gain on Schedule D.
How long do I have to buy another house to avoid capital gains? ›
Frequently Asked Questions about Capital Gains Tax
You might be able to defer capital gains by buying another home. As long as you sell your first investment property and apply your profits to the purchase of a new investment property within 180 days, you can defer taxes.
What is the 2 out of 5 year rule? ›
When selling a primary residence property, capital gains from the sale can be deducted from the seller's owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale. That is the 2-out-of-5-years rule, in short.
How many months do you have to avoid capital gains tax? ›
You must have lived in the house for at least two years in the five-year period before you sold it.
How do I avoid long term capital gains? ›
Invest for the Long Term: Hold your investments for longer periods to benefit from the Rs. 1 lakh exemption and potentially avoid LTCG tax altogether. Tax-Efficient Investing: Consider consistent performers and avoid frequent portfolio churning (buying and selling) to minimise taxable gains.
