How does loan amortization factor in?
When you take out your mortgage, your lender will provide you with an amortization schedule that shows each monthly payment and how it’s broken down into principal and interest. The longer you stay in the home, the greater portion of the monthly payment goes toward the principal. That means if you sell within those first couple of years, you’ll likely have earned very little home equity as most of your payment went to the interest rather than the principal.
How can I estimate the cost of selling my home early?
Regardless of when you sell, there will be costs associated with the sale. The difference is that with a quick sale, the property hasn’t had much time to appreciate, which means the expenses could cut into (or even obliterate) any equity.
The typical costs associated with selling add up to about 9% to 10% of the sales price and include:
- Staging and house prep fees: 1% to 4% — though some agents will pay for staging depending on the situation
- The standard Realtor® commission, which averages 5.8% of the sale price
- Closing fees, which include title fees, transfer taxes, escrow fees, recording fees, and prorated property taxes: 1% to 3%
- Seller concessions: 2% to 6%
- Overlap costs: 1% to 2%
You’ll also need to factor in inspection and appraisal fees, moving and relocation costs, and mortgage payoff amount. To estimate the cost of selling your home, enter your information into HomeLight’s Net Proceeds Calculator.
Bill Samuel, a property investor and owner of Blue Ladder Development, offers up a real-world example: A home purchased in June of last year for $246,000 cost the buyer $5,145 in transaction fees (title, attorney, transfer stamps, etc.) with a total cost basis of $251,145. If the buyer then sells the property the following year, they should expect to pay about $15,000 in fees alone.
Will an early home sale cost me more in capital gains tax?
Even if you do experience a quick appreciation in property value, the capital gains tax could take a big chunk out of any potential profits. If you sell:
Less than a year after buying, you’ll have to pay a short-term capital gains tax, which is assessed on assets held for a year or less and taxed as ordinary income according to your tax bracket, which can range between 10% to 37%.
2024 short-term capital gains tax brackets.
| Tax rate | Single filers | Married filing jointly | Head of household |
| 37% | $609,351 or more | $731,201 or more | $609,351 or more |
| 35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,701 to $609,350 |
| 32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,951 to $243,700 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,501 to $191,950 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 | $63,101 to $100,500 |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 | $16,551 to $63,100 |
| 10% | $0 to $11,600 | $0 to $23,200 | 0$ to $16,550 |
Source: IRS.gov (Tax inflation adjustments)
For instance, if you purchased a property for $300,000 and sold it 10 months later for $370,000, your gain would be $70,000. If your regular income is taxed at a rate of 22%, that means you would have to pay 22% of the $70,000 gain, which would be $15,400.
More than a year after buying, but less than two years, any profits will be taxed at the lower long-term rate — either 0%, 15%, or 20%, based on your capital gains tax bracket.
2024 long-term capital gains tax brackets
| Tax rate | Single filers | Married filing jointly | Head of household |
| 20% | $518,901 or more | $583,751 or more | $551,351 or more |
| 15% | $47,026 to $518,900 | $94,051 to $583,750 | $63,001 to $551,350 |
| 0% | $0 to $47,025 | $0 to $94,050 | $0 to $63,000 |
Source: IRS.gov (Capital gains table)
At least two years after buying, you can deduct capital gains up to $250,000 for single homeowners and $500,000 for married homeowners filing jointly and typically won’t have to pay capital gains taxes on that amount of your home sale profits.
To qualify for the capital gains tax exemption, you must meet certain conditions set by the IRS, such as you must have owned and occupied the property as your primary residence for at least two of the five years prior to its date of sale. In addition, the exemption is only available once every two years.
That means the longer you stay in the home, the less tax burden you’ll have to carry.
