Heading into 2022, it’s a great time to be selling a house. This can tempt many homeowners (even those who purchased a home less than a year ago) to think about selling. But, is it a good idea to sell your house after 1 year of owning?
With homes appreciating rapidly, this may seem like the right move. But, there is more to think about in terms of finances such as capital gains taxes, real estate agent fees, and interest on the loan.
As we’ve seen, the market can change rapidly in just 12 months, so let’s explore what to consider (the good and the bad) of selling a house after 1 year.
- Capital gains taxes can be upwards of 37% if selling within a year and 20% if within 2 years.
- Closing costs are typically 10% of the sales price after accounting for agent fees.
- After accounting for capital gains taxes, closing costs, and interest on the loan, selling after a year is not recommended.
3 Biggest Costs of Selling a House after 1 Year
There are several costs to selling a house after owning it for just one year that can turn what you think is a profitable idea into a net loss. We’ll start with the heavy hitter first.
1. Capital Gains Tax
The largest cost when selling in a year is the capital gains taxes you will owe on your profits. For most people, this is about 15-20% of your profits, which is a lot of money regardless of how much your home has appreciated.
Selling Within 1 Year
If it’s been less than 12 months since you purchased your home, you could be paying more than 15-20% on the sale. This is because a home sale in less than a year changes the way the IRS views your mortgage.
Your mortgage is viewed as a short-term gain causing you to be taxed at the same rate as your income. If you’re in a low tax bracket this could be good news. But, if your tax bracket is high, this could mean losing up to 37% of the money made on the home sale.
Selling Within 2 Years
By waiting to sell until you’ve owned the property for at least 1 year, the IRS will lower the capital gains taxes you are required to pay. This allows you to save a little bit of money in capital gains taxes with a max of 20% on the profits of your home sale.
Selling After 2 Years
Just by waiting two years after your home purchase, you may not have to pay capital gains taxes at all.
If you wait to sell until after two years of owning, you can avoid capital gains tax on the money made that is under $250k (if single) or under $500k (if married). This is huge when we’re talking about the IRS collecting up to 37% of your profits.
We recommend speaking with a tax professional who can thoroughly explain how the capital gains tax works and how much you will need to pay in capital gains taxes for your unique situation.
2. Closing Costs
When selling your house, there are always closing costs involved in transferring the real estate from one owner to the next.
Real Estate Agent Fees
Most people hire an agent when selling real estate. If you sell through a realtor, they will typically charge around six percent of the sales price as their commission.
This 6% gets divided into 3% for the buyer’s agent and 3% for the seller’s agent.
This commission can cut into your profits in a big way. If you sell your house for $400k, that’s $24,000 just going to the real estate agents. The last thing you want is to lose money from not accounting for all selling costs.
Additional Closing Costs
When buying your home, you most likely received a document outlining all closing costs you were responsible to pay. The buyer typically doesn’t have as much to cover compared to the seller.
But now, you’re the seller! You are responsible for closing costs such as title fees, transfer taxes, mortgage payoff, liens, prorated property taxes, etc. Additional seller closing costs can reach 3-4% of the home’s purchase price.
Once you add in the real estate agents’ commissions along with these other closing costs, you’re up to 10% of the purchase price. At a purchase price of $400k, you would be paying $40,000 in closing costs.
3. Interest Payments
Assuming you purchased your home by taking out a mortgage, you have made interest payments on the home you want to sell. The majority of loans are front-loaded with interest payments meaning you pay more in interest in the first year than any other year.
As your loan matures, your interest decreases because there is less principle to pay. However, you don’t reap this benefit if you sell your house within a year. You will have made extensive interest payments to your lender for very little equity in the home.
Other Costs of Selling in Less than a Year
There are more costs associated with selling a house in a year. We’re talking about things like: local moving costs, transferring utility accounts, cleaning, upgrades, etc… These may not seem like a big deal, all of these expenses add up quickly!
When is it Good to Sell a House within 1 Year?
The market has increased a lot, but has your house increased in value enough to compensate for the capital gains tax, interest, closing costs, and other associated expenses?
Market Appreciation
If you’re selling a house after owning it for just one year, you’ll want to consider how much the market has appreciated since you bought it.
In some cases, selling in 12 months may be a good idea if your home has significantly increased in value and you want out. In other cases where the appreciation does not outweigh the costs of purchasing the home, selling in 1 year may not be worth it financially.
The saying goes that “timing is everything,” but trying to time the real estate market and capitalize on gains within such a short period of time is hard to do. Are there bigger reasons driving the home sale than just trying to liquidate appreciation? If not, the amount paid in capital gains tax alone is reason to wait.
Forced Appreciation
Have you considered updating your house to increase the value? This is what we call forced appreciation. In a steady or upward trending market, certain repairs can make your home worth even more.
It’s crucial to only make repairs that will give you a high return on your investment. Focus on the items that will increase your home’s value such as a new front door, garage door, or window replacement– these typically lead to a higher final sale price.
Job Relocation
If you must sell within a year due to job relocation, it could be worth taking a loss. Selling your home for less than you purchased it can be better than waiting and trying to sell in a possible down market and taking an even bigger loss.
Consider whether selling your home quickly is the best option not only financially but in terms of convenience. Selling now could help you get finances under control and minimize any losses that may occur from holding onto the house after moving.
Relocating can be very expensive, so if you choose to sell before moving, selling as soon as possible is best case scenario. Consider options such as selling to cash home buyers to have your house sold within the month.
If selling before you relocate isn’t an option then renting in your new location or getting an AirBnb until your home sells might be a better alternative. Run the numbers and don’t forget to account for your time going back and forth and communicating with your agent.
Financial Distress
In some cases, selling a house within 12 months is done because of financial distress. The homeowner may need to sell in order to pay off debt or cover other expenses. Selling a home quickly can be less costly than going through a foreclosure or short sale…
Although selling a house after only owning it for one year may feel like the only choice in tough times, it’s not necessarily a bad choice depending on your circumstances. If going far into debt with liens on your home, just selling the house to get back under control financially could be the best decision.
Cash home buyers can help homeowners get their lives back on track by providing money as quickly as 7-28 days for the home. This allows homeowners to cash out and start fresh without declaring bankruptcy or sending the home to auction.
How The House Guys Can Help
If you want to sell in a year from when you purchased the home, we may be able to help you out…
Work with Us and Get Access To Our Agent
If you’re looking for full market value, we have a licensed agent on our team who will get you top dollar for your home.
“But everyone says that…”
We’re not playing around. Give us a call to connect with him, and find out why he’s our trusted agent for all full market value home sales. (571) 207-5171
Receive an All Cash Offer for Your Home
If you need cash fast for your home, we are happy to make you an all cash offer and close when you need it. This option lets you avoid realtor fees, repairs, and all the other hassles that come with selling your home the traditional way.
However, we cannot offer full market value in cash. We wish we could, but we would be losing money on every transaction.
Are you okay with less than full market value to avoid paying agent fees, closing costs, repairs, inspections, and dealing with delays and uncertainties?
We may just be the right fit for you.
Fill out the form below to connect with The House Guys team whether you want to speak with our agent or receive a no obligation cash offer. We’re here to make your home sale simpler.
Final Thoughts On Selling A Home After A Year
As we can see, selling a house after one year doesn’t always make financial sense. The costs of selling in a short turnaround time often outweigh the rewards. If you’re thinking about selling your home after 12 months, consider these points before listing:
- Do I absolutely have to sell?
- How do my finances look if I hold onto this property for another couple years?
- Can I profit after accounting for capital gains taxes, agent fees, closing costs, and interest?
Selling a house can be a lot of work, so make sure to factor in the value of your time to move, find an agent, repair, and clean when deciding whether it is a fruitful decision to sell after a year.
If you have no option but to move, fill out the form below or give us call. We’re happy to see how we can help get your house sold quickly. (571) 207-5171
