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If you don’t meet all of the requirements for the exemptions listed above, the IRS has special rules that may allow you to claim a full or partial exclusion — such as job relocation, health changes, or other unexpected circumstances. Consult with a tax professional to examine your options when selling a home you have owned for only two years. “I wouldn’t relocate until I talk to a CPA,” Gore states.
Note: Selling a second home, vacation home, or any property that isn’t your primary residence can make you liable for capital gains tax up to 20%. This could come into play if you opt to rent your home before you sell it, although you can take depreciation for a rental.
4. How can I calculate my potential loss?
These steps can help you find out if you stand to lose money by selling your home after two years:
Keep in mind that selling your home at a loss can still incur tax obligations. In most cases, canceled — or forgiven — debt is considered taxable income because the borrower “gains back” the amount they would have had to pay.
Forgiven debt can include a short sale, foreclosure, deed in lieu of foreclosure, or loan modification. If the lender cancels a debt on your primary residence, you may be excluded from any tax obligation. Check with the IRS Interactive Tax Assistant to determine if you have to include canceled debt on your income tax return.
Gore recommends forming a team consisting of a real estate agent, your mortgage broker, and a CPA. “Tax issues are complicated,” he acknowledges. “It’s worth the cost.”
5. How do I find my home’s value?
No matter how long you have lived in your home, it’s important to know what the property is worth in order to make wise decisions about selling.
Find out what your home might be worth by using HomeLight’s Home Value Estimator. This free tool examines your property information and local housing market data to provide a preliminary home value. It’s a great starting point to get a ballpark estimate of your home’s worth, but for a detailed evaluation, we recommend getting a full comparative market analysis from a top real estate agent.
Contact an experienced agent to do a comparative market analysis. They compare your home’s features, size, location, age, condition, and other details with those of similar properties in your area that have recently sold in order to provide an accurate estimate of your home’s market value.
A professional appraiser can provide an even more accurate valuation. An experienced, licensed, and certified appraiser performs an in-depth assessment of your home against verified recent home sales to pinpoint its current value.
6. What are the costs I might incur when selling my house?
If your home has experienced significant appreciation, it’s possible to break even if you sell within two years of purchase. However, it’s more likely that you’ll have a loss.
When selling your home, you’ve got to consider expenses such as closing costs, moving costs, and capital gains. If you’re paying for the home with a typical mortgage, you will not have accrued much, if any, equity in that timeframe. You can check to see where you stand with this amortization schedule.
Here’s a breakdown of some of the costs you may incur:
