Selling your house after one year of owning it is possible. But for many people, it's not the best choice because you'll actually lose money on the sale.
Sometimes, you have no option if you're faced with a job change, family issue, or dangerous location, though. These situations may force you to seek a new home ASAP.
Whatever your reasons for moving, the biggest hurdles you'll face are capital gains taxes and closing costs. Both of these can cause you to lose money — even if you sell the house for more than you paid.
Still need to sell? You may be able to reduce your losses or break even if you list with Clever Real Estate. We pre-negotiate low listing fees of just $3,000 or 1% with full-service agents from top brokers. On a $350,000 home, that's a savings of $7,000 compared to the traditional 3% seller's agent commission!
What are the drawbacks of selling your house after one year?
For the most part, the challenges you'll face when selling your home after just one year will be financial. (Beyond the stress of having to move twice!) Let's take a look at some of these financial risks.
1. You'll face capital gains taxes
Capital gains taxes are charged on the profit you make when selling your house. Calculate your profit by subtracting your original purchase price from the new sale price. This profit is the amount that the government may tax.
How much you'll pay on capital gains taxes is influenced by:
- Total profit, if selling before two years
- Your income
- How long you've owned your home
People with a higher income are in a higher capital gains tax bracket than people with lower incomes, just like with regular income taxes.
If you've owned a home for less than one year, you'll pay short-term 10–37% taxes on your profit. Capital gains taxes after one year go down a bit. You'll pay 0–20% taxes on the profit. This tax is referred to as long-term capital gains.
Here's an example of how capital gains tax works on a home you're selling after one year.
Original purchase price
Sale price 1 year later
Total profit x capital gains tax rate
$20,000 x 20%
Total capital gains taxes
If you can wait to sell after two years, you won't pay any capital gains taxes on profits less than $250,000. You're unlikely to get that much of a profit in such a short span, so that's why we recommend waiting to sell after two years if you can.
✍️ Editor's note: Historically, home values have increased from 4% to 8% on an annual basis. This appreciation rate means selling a $300,000 after one year might net you $312,000–$324,000 depending on the market. Even two years in, most sellers will be far below $250,000 in profits!
2. You'll pay closing costs… again
Any time a property changes hands, there are closing costs involved. When you bought your home, you likely had to pay for a portion of the closing costs.
But, closing costs are lower for buyers because they don't usually pay for agent commission. You probably paid 3-5% of the sale price for things like lender fees and title and escrow charges.
Now that you're selling, you'll have to pay agent commission. Real estate commission averages about 6%: 3% to the buyer's agent and 3% to the seller's agent.
That's not counting an additional 1-3% in other closing costs, like transfer taxes and prorated property taxes. All in all, seller closing costs add up to around 10% of your home's sale price.
Let's see how closing costs can eat into your profit.
Buying your home
Selling 1 year later
~5% = $15,000
~10% = $32,000
Even though your house went up $20,000 in value, you're still losing $27,000!
Usually, you'll earn back those costs in home equity over time, but if you're selling your home after just a year, you won't have built up enough equity to cover the losses.
While you can't get your closing costs down to nothing, one way to lower them a bit is by using a free low commission service like Clever. In this case, you'd save over $6,000 in realtor fees!
3. You'll pay moving costs… again
The logistics and costs of moving again after less than a year can be daunting.
A local move might be a few hundred dollars if you're lucky. Estimates can range anywhere from $550 to $2,000 depending on your local market and the size of your move.
Local moving costs are tame compared to a cross-state or cross-country move. It could cost you thousands for truck or pod rental and labor. In total, expect somewhere between $2,000 to $7,500, again depending on your circumstances.
These moving costs don't even include things like storage costs, packaging supplies, and house cleaning. While these are smaller fees, they all add up to one big bill.
4. You'll be out a lot on interest
When you buy a house, you aren't just paying for the house — you're also usually paying interest on your mortgage. This is the fee the bank is charging you for giving you a loan.
Unfortunately, most loans are front-loaded with interest payments because the balance of your loan is higher. As you pay off more of your principal, your interest payments also decrease.
Because of this front-loaded structure, in the first year, you actually pay more in interest, not really reducing the principal balance you owe. In fact, most of your money is going straight into your lender's pocket.
For example, if you took out a $240,000 mortgage with a 4% interest rate, you'd pay around $13,000 on your mortgage in your first year. But in those first 12 months, you'd only reduce your actual debt by just over $4,000 — the other $9,000 goes toward interest! That means you'd still owe $236,000 on your loan.
Over 30 years, your interest rates eventually balance out, and more of your payments go toward paying off your house. But by selling so close to when you bought the house, you're basically just giving your money to the bank for little equity.
✍️ Editor's note: Some mortgages also come with a prepayment penalty, meaning you'll get hit with fees for paying it off early. Always check your loan's terms and conditions!
Interest rates can be confusing, but you can find more information about your loan payment terms in your mortgage's amortization schedule. Not sure where to find this? Contact your lender and they should be able to help.
Is it worth it to sell a house after one year or less?
In general, we don't recommend selling your house after just a year because you'll almost certainly lose money. The only exception is if you're a seasoned house flipper who's made substantial improvements to the home or your local housing market is seeing a huge spike in prices.
To illustrate why you'll likely lose money, let's use all of the information we mentioned above for a calculation. To make it simple, we'll assume an original home purchase price of $300,000 and a new sale price of $320,000. And for the capital gains tax, we'll go with the 20% tax rate.
Closing costs and moving costs can vary greatly, so we'll use some average numbers here as well.
The recommended down payment for a home is 20%, so let's assume you paid that for your original purchase. That would make your original loan $240,000, and after a year of payments, your remaining balance would be about $235,800, which you'd need to pay off from the sale of your home.
Here's how all of that would add up:
Obviously, these numbers aren't great, but sometimes life happens. You can't always predict how quickly you'll need to move out of a house.
And luckily, you don't need to settle for losing this much money. With a little effort, there are ways to reduce some of these costs so you don't have to take such a heavy hit.
Can you sell your house after a year and still make a profit?
In most cases, you probably won't make a profit when selling your house after a year. That said, it's possible in some circumstances if you budget right and take certain steps. At the very least, you can offset some of these costs. Here are some of the approaches you can try.
1. Increase the value of your home with small projects and upgrades
Projects like updating your entry door, adding a new coat of paint, replacing your garage door, and replacing windows all have a high return on investment that can help you earn more on the sale of your home.
Just don't get sucked into money-draining projects like a full bathroom or kitchen remodel, as these typically don't have a huge return on investment.
2. Wait until you qualify for a lower capital gains tax rate
Remember, you'll pay capital gains taxes on the profits from your home sale for the first two years you own it. The higher short-term capital gains tax rate applies for a year or less, while a lower long-term capital gains tax applies between years one and two.
If you're able to, even waiting just a few months could save you thousands of dollars on your tax bill if you're able to get down to the long-term capital gains tax tier. And if you can wait it out until year two, you likely won't need to pay anything.
Another way to get out of paying capital gains taxes is to look for tax exemptions. For example, you may qualify for a tax exemption if you've lost your job, had a big health issue, or got a divorce.
3. Handle moving on your own
Since moving costs can easily be thousands of dollars, why not try to handle your move on your own? With a little muscle, sweat, and teamwork, you can chop hundreds if not thousands off your moving expenses.
See if you can round up friends or family with trucks or vans to lift and transport your items. Scour Facebook or Buy Nothing groups for free moving supplies. And keep an eye out for first-month specials at your local storage unit facility — this may give you a short-term place to store things at a low cost.
4. Consider selling your home FSBO
One way to save on seller agent commission fees is by selling your home for sale by owner (FSBO). This can lower your closing costs by 3%.
That said, going the FSBO route is not easy, which is why FSBO sales only account for 10% or less of all home sales in a given year.
If you sell without a realtor, you'll need to manage all of the listing, negotiating, and paperwork on your own, which can be daunting. And you'll still need to offer a competitive buyer's agent commission, so you're not completely off the hook when it comes to realtor fees.
5. Work with a low commission real estate company
For most sellers, one of the best ways to save money if you're selling a house in a year or less is to use a low commission real estate company.
Companies like Clever connect you with full-service agents that provide you with all of the support and service you need throughout the selling process, just at a third of the cost than a standard agent.
At Clever, we negotiate with highly-rated agents from major brands like Keller Williams, Coldwell Banker, and Century 21 to score you a $3,000 or 1% listing agent commission fee.
Using the $320,000 house example from above, Clever could save you around $6,500 on commission fees. We've helped our customers save over $70 million!
Alternatives to selling your house after less than a year
If you can afford it, a great option to avoid the losses associated with selling a home after a year is to rent your house out.
If you keep your original home, move into a new principal residence, and find some renters, you can recoup some of the costs from your initial purchase and earn a nice passive income from being a landlord.
If you don't want to deal with official leases, you might also consider listing your property as an Airbnb. That way, you control how often people stay there, giving you flexibility if you decide to make a quick sale.
No matter what you decide in the end, if you're considering selling your home after a year or less of ownership, it's important to get in touch with an experienced real estate agent who can help guide you through the home selling process.
Clever connects you with top-rated, local agents from major brands or regional brokerages. A full-service partner agent with Clever will help you price and market your home, ensuring you get an offer quickly and for top dollar. These agents have agreed to work for a flat fee of $3,000 — or 1% if your home sells for more than $350,000.