Selling a house can be an expensive and overwhelming experience.
For some, the future costs of a home sale are prohibitive, so dissatisfied homeowners may hold on to property despite their better judgment.
There are several reasons you may wish to sell your house after one year. You may need the money or want to get a faulty property off your hands. You may face foreclosure.
Whatever the reason, selling your house after one year need not be a stressful or regrettable experience. There are many ways to manage the costs of selling a house and enjoy your home sale experience.
Use this guide to determine what to do if you want to sell your house after one year.
Can You Sell Your House After 1 Year?
Although uncommon, selling a house after one year is legal and achievable.
Many homeowners are dissuaded by the potential costs of a home sale. The fees and payments associated with a house sale can be daunting from mortgage payoffs to closing costs.
However, there are many ways to manage and eliminate the costs and inconveniences of a quick real estate turnaround.
If you wish to go a different route, find a qualified real estate agent to support you.
There are no limits on when you can sell a property, and there are several strategies available to you that can make the process easier.
When Can I Sell My House After Buying It?
You can sell your house at any time when you rightfully own it. You could even sell your house days after you purchase it.
The process is perfectly legal, though you may incur some additional costs.
What Happens if I Sell My House After 1 Year?
Selling your house after one year in Texas is relatively simple. As with any other home sale, you would either sell your home for cash or place your home on the market and work with an agent.
First, determine the value of your home. Consider market value, renovations, market appreciation, and inflation. Then, use this guide to assess the costs of placing your home on the real estate market and decide whether you can afford to pay.
Lastly, evaluate the pros and cons of selling to cash buyers. Decide which route you want to take and initiate the process of contacting a professional.
Cons of Selling Your House After 1 Year
There are several drawbacks to consider when selling your house after one year.
Consider the factors below when deciding whether to initiate a home sale within one year of purchase.
Potential Financial Losses
As many homeowners know, selling a home is expensive.
Suppose you choose to put your home on the market. In that case, you must consider seller closing costs, real estate agent commissions, property taxes, mortgage payments, capital gains taxes, escrow fees, and moving expenses.
Additionally, when you sell a home within one year of buying it, you may need to pay 15%-20% of your total gains in capital gains taxes.
You may also face a prepayment penalty from your mortgage lender or additional fees from a first-time homebuyer program (if you used one).
Stressful Moving Process
Selling a home is always stressful, but selling your house within one year of purchase may provoke additional stress.
Since you have just undergone the costs and tasks associated with buying a house, you may not be prepared to re-initiate the experience of a real estate transaction.
Additionally, moving is stressful, and additional fees may provoke even more overwhelming.
Job and Community Relocation
It can be hard to acclimate to a new place—particularly if you have recently moved.
Should you choose to sell your house, you may need to find another job and another home to live in. This can take time, and you may incur additional costs.
Costs of Selling Your House After 1 Year
There are several costs associated with the sale of a home in general and a few fees and tax implications that result from the sale of a home within 1-2 years of purchase.
Consider the following costs related to a short-term home sale before deciding.
Valuation and Preparing Your Home For Sale
Before selling your home, you may need to determine its value.
To do this, you may hire an appraiser or real estate professional to determine your home’s value. Additionally, you may opt to complete particular renovations or repairs to make your home more appealing to potential buyers.
Preparing your home for sale entails cleaning it thoroughly and staging it for potential buyers. If you choose to hire a real estate agent to help you, this will also cost you money.
Real Estate Commissions
If you sell your home on the real estate market, you will likely need to hire an agent.
Agents typically collect commissions, and the home seller is often responsible for paying commissions for both the seller’s agent and the buyer’s agent. Consider this before initiating the sale of your home.
Closing costs are an unfortunate by-product of any sale. Closing costs will vary depending on your route but expect to cover 1-10% of your home’s sale price.
Moving is also expensive. According to Forbes, the national average for moving costs is around $1400. Ensure that you are prepared to cover the costs of moving and relocating for you and your family.
Mortgage Payments and Fees
You will likely incur a prepayment penalty if you have a mortgage on your property, you will likely incur a prepayment penalty. Your mortgage lender will likely charge a fee of 1-2% of your total loan upon selling your house.
Prepayment penalties typically come from non-traditional lenders, so if you financed your house through a non-governmental entity, you would likely face one.
The Dodd-Frank Act protects families from paying more than 2% of the total loan amount during the two years following purchase, so do the math to ensure you are not incurring an unlawful payment.
Prepayment Penalties: Types
You’ll encounter two types of prepayment penalties. The most common are soft and hard. Soft prepayment penalties are typically in the documents related to your mortgage loan and occur when you refinance your home.
Onerous prepayment penalties occur when you sell your home or try to pay off more than 20% of your loan balance in under a year.
You might qualify for exemptions on prepayment penalties if you face a recent hardship, such as the loss of a loved one, a job relocation, or an unexpected event or circumstance that prevents you from maintaining homeownership. Contact an attorney to find out more.
Most sellers face taxes when making a sale. For example, most sellers face transfer taxes paid to the IRS. However, sellers who have owned their homes for shorter periods may face additional tax implications.
If your home has appreciated, you will likely need to pay a capital gains tax, representing 15-20% of your home’s value.
How Capital Gains Tax Works on Home Selling
If your home appreciates, you will likely face a capital gains tax. Capital gains taxes are levies paid to the IRS on assets sold at a profit. There are two types of capital gains taxes, and tax rates vary depending on your tax bracket.
The two types of capital gains taxes are long-term capital gains taxes, ranging between 0-20% of your total profit, and short-term capital gains taxes, determined by your ordinary income tax bracket.
Short-term capital gains taxes are typically higher than long-term tax rates, and they almost certainly apply to sales made within one year of purchase.
This distinction represents an IRS incentive for sellers to hold on to their investments for longer than a year.
For this reason, it is best to wait until one year has passed from purchasing to selling your home.
Capital Gains Tax Rates
Tax rates depend upon your filing status and ordinary income tax bracket.
For example, a single seller making up to $40,000 a year will face no tax on capital gains. Married couples can earn up to $80,800 collectively and avoid the additional taxes.
However, if your ordinary income is higher, you will pay between 15% and 20% of the home’s sale price.
How To Avoid Capital Gains Taxes
Tax avoidance is rarely advisable.
However, you can speak to a qualified tax professional or CPA to determine whether you are eligible for an exemption on capital gains taxes.
The best way to lower capital gains taxes is to hold onto your property for longer than a year since long-term capital gains taxes are typically lower than short-term capital gains taxes.
Is It Worth Selling a House After One Year?
It may or may not be worth selling your house after one year—everything depends upon your ability to incur the additional costs. If your home is your primary residence and the conditions are intolerable, it may be worth selling your house, no matter the cost.
If your home is an investment property and you are struggling to boost revenue, you may gain more money in the long term with a short sale—or you may not. Ultimately, you will need to calculate the cost of keeping your house and weigh it against the cost of selling.
Typically, the best solution is to wait until a year has passed from the time of purchase. By choosing to maintain homeownership for an additional period, you can avoid the additional costs of prepayment penalties and costly capital gains taxes.
Determining whether to sell a house within one year of purchase is never easy. In all likelihood, if you are facing the possibility of making a quick sale, you are dealing with other additional hardships that consume your time, finances, and energy.
There are other solutions for sellers who need to make a quick sale. You can contact cash home buyers and sell your home as is while avoiding many of the additional commission fees and costs associated with realtors and traditional sales.