This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.
Selling a home shortly after buying it may not work to your financial benefit. Read on to see why.
Image source: Getty Images
Many people buy a home with the intention of keeping it for many years. After all, moving is a hassle. And a lot of people would much rather not have to go through it frequently.
But what if you end up having to sell your home only a year after buying it? You may have to do so if you get a new job or your circumstances change in a way that you can no longer afford your mortgage.
You’re allowed to sell your home a year after you buy it. But doing so may not benefit you financially. In fact, you might get hurt financially if you sell your home after only a year.
You may not snag a profit
It can take time for home values to appreciate. If you sell your home a year after buying it, it may not be worth much more than what you paid for it. In fact, it may even end up being worth less.
But let’s say you’re looking at selling a home you bought for $500,000 for $515,000 in a year. There could be some profit there, particularly if you sell your home yourself and avoid having to pay commission to a real estate agent.
But remember, it costs money to put a mortgage in place. So your modest profit in this case may not be enough to fully recoup the closing costs on your mortgage.
You might end up liable for capital gains taxes
Capital gains taxes apply when you sell an asset at a profit. This holds true whether that asset is a stock or a home.
The good news is that the IRS offers a capital gains exclusion for homeowners worth up to $250,000 for singles and $500,000 for married couples filing a joint return. But there are rules you’ll need to follow to enjoy that exemption.
The IRS says that you need to have owned your home for at least two years in the five-year period before you sell it to enjoy a capital gains tax exclusion. So if you sell after only owning your home for a year, you clearly don’t meet this requirement. This means that if you do end up making a profit on the sale of your home, it becomes a taxable event for you.
Be careful when selling your home
You may have no choice but to sell your home shortly after buying it. But if you do have the option to hold off on your sale, you may want to consider it. Waiting a bit of time could help you enjoy more of a profit and, just as importantly, avoid a huge tax bill on your profit.
Remember, you may have options that allow you to keep your home longer. If money has gotten tight and you’re looking to sell due to affordability issues, you can look at renting out a portion of your home to help cover your mortgage payments. This won’t work for everyone and in every situation, but in some cases, it could be a solution.
Our picks for the best credit cards
Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
