Circumstances can change in periods of economic instability and uncertainty — sometimes very quickly. This may result in the need to make major life changes much faster than you otherwise would. While most people who purchase a home stay in it for a median of 13 years, according to the National Association of Realtors, some people find it necessary to sell their home after as little as one year or less.
If you find yourself in this situation, either by choice or out of necessity, do not worry. While the situation is uncommon, it is far from unheard of. Here is everything you need to know about putting your home back on the market after just one year.
Can I sell my house after 1 year or less?
Yes. Under most circumstances, there are no legal restrictions preventing you from selling your home after owning it for less than a year. In fact, if you wanted to, you could put your home back on the market immediately after closing on it.
That said, you are likely to face some financial challenges in pursuing this route. For instance, if you sell your home for more than you bought it for, you may have to pay capital gains taxes. These taxes apply to properties that are sold within the first two years of ownership, and depending on how much you make on the sale, they can be steep.
In addition, if you have a mortgage on the property, you may be subject to a prepayment penalty. “When selling a home after a year or less, a mortgage prepayment penalty [may be] applied of approximately 2 to 5 percent of the loan amount,” says mortgage broker Chris Allard of the Chris Allard Mortgage Team in Ottawa, Canada. “The minimum penalty is 3 months of interest, to a maximum of approximately 5 percent of the total loan amount.”
Amy Cherry Taylor, a Realtor and associate broker at Amy Cherry Taylor & Associates in Fredericksburg, Virginia, notes that most loans don’t contain this penalty. But you’ll want to check your specific mortgage to make sure you aren’t subject to it. “If you used a first-time homebuyer program or a grant program, you may have some type of fee that will be owed upon the sale of the property,” she says.
There are some exceptions that may allow you to avoid paying additional fees for selling your home within the first year of ownership. These include hardships like job loss, divorce or a death in the household. You may also be able to receive an exception for military service. Be sure to consult with an attorney if you believe you are eligible for one of these exceptions.
Drawbacks of selling too quickly
Typically, if you’re selling your home after one year or less, something has gone wrong or an unexpected circumstance has caused a dramatic change of plans. That is sometimes unavoidable, of course, but it does create some challenges:
Capital gains and tax implications
Capital gains taxes are likely to be the biggest expense you will face when selling your home so soon after purchasing it. “Capital gains tax will be owed if you have not [yet] lived in your primary residence for two years,” says Taylor.
To calculate your potential capital gains tax, take the final sale price of the home and subtract the price you purchased it for, along with any selling costs and the cost of any home improvements done during the period that you owned it. If your net proceeds are below $40,400 after the sale, you may not have to pay capital gains tax. But if they’re between $40,400 and $445,850, you will pay 15 percent on the total gains. And if they’re more than $445,850, expect to pay 20 percent on those gains. “You will want to speak with your tax advisor,” says Taylor.
You’ll also have to consider the taxes at your new home. You may be moving to an area that has higher property taxes, for example, which you will need to account for in your budget.
Closing costs and moving expenses
In addition to tax challenges, you’re going to have to go through the sometimes costly process of moving again. The average move costs $1,677, according to HomeAdvisor, and it will be even more if you’re moving long-distance.
Meanwhile, there are also closing costs to consider. Closing costs for sellers vary by state, but in 2021, they averaged just over 1 percent of a home’s sale price, according to data from ClosingCorp. So if you sell your home for $300,000, you can expect to owe a bit over $3,000 in closing costs.
Make the best of the situation
Moving within a year or less of buying a house is obviously not ideal, and avoiding it is best if possible. While this isn’t always an option, consider some of the possibilities that can help you make the best of this difficult scenario.
Try to wait
If you can hold on to the home for at least two years, you can likely avoid paying costly capital gains taxes. Waiting may not seem like an option, but if you are able to rent out all or part of it, the rental income might offset the cost of the mortgage.
Really need to sell? Consider having the home staged. Professional stagers know how to emphasize a house’s best attributes to make it as appealing as possible to buyers — and get you the best price. “Potential buyers will know how long you lived in the home and may see it as a red flag, jumping to the conclusion that something must be wrong with the property,” Allard says. Try to mitigate that by showing off what drew you to the home in the first place.
Alternative selling platforms
If you are in a rush and need to sell fast, consider selling to an all-cash buyer. Cash deals close much more quickly than ones that involve financing and lenders. Depending on your location, you may also be able to get an instant online offer from an iBuyer. This route may not net you as much money as a traditional sale, but it will get you that money much faster.
Find a trusted real estate agent
Perhaps the most important part of selling a home after owning it for less than a year is working with an experienced real estate agent who knows how to handle these things. Finding an agent who can navigate the market and work with your tricky circumstances is essential in unique selling situations.
“I have helped a number of clients sell their home in this exact scenario over the last couple of years,” Taylor says. The coronavirus pandemic in particular created new workplace conditions that have upended people’s plans: “We have seen many more people able to do this over the last two years due to market appreciation,” she adds. “There were not many markets prior to the ‘Covid market’ that allowed such quick appreciation.”
Selling your home after just one year, or even less, is certainly possible. However, doing so may carry penalties and tax implications that make it an expensive prospect. Waiting two years is best, if possible, to avoid potential capital gains taxes.