Selling stock to buy a house can be a smart move, but you'll want to consider the tax implications of selling stock to buy a house as well as your personal long-term financial goals.
Other factors—such as how long you've held the stock for and whether or not you've incurred losses—will also affect if it makes sense to sell stock to buy a house. Remember, when you sell stock for any reason, you also lose out on any potential gains those stocks may have otherwise made if you'd held onto them. You'll also likely have to pay capital gains tax.
Always consult with a professional—including a tax advisor and mortgage provider—before deciding to sell stocks to buy a house. There might be better financial options out there. But, for now, here are some general guidelines to keep in mind about the pros and cons of selling stock to buy a house.
Selling stock to buy a house: Tax implications
If you make a profit from selling a stock to buy a house, you'll have to pay capital gains tax on that profit—even if you use the money as your down payment. How much tax you pay depends on whether it was a short-term asset (you've held it for less than a year) or a long-term asset. But you can plan ahead to reduce your taxable income from stock sales so you'll pay less taxes on it.
Long-term capital gains tax rates are often much lower than short-term rates, which are the same as your income tax bracket rate (10%–37%). The IRS taxes capital gains on assets held for at least a year based on three tax rates — 0%, 15%, and 20%. How much you pay will depend on how long you owned the stock, your tax status, and your taxable income.
Long-term capital gains tax: pay this on stock you've held for over a year
Long-term capital gains tax applies to profit from a sale of a stock you've held for over a year. Here’s what you can expect to pay for long-term capital gains tax based on your annual income.
| Tax-filing status | 0% tax rate | 15% tax rate | 20% tax rate |
| Single | 0%–$47,025 | $47,025–$518,900 | $518,900+ |
| Married, filing jointly | 0%–$94,050 | $94,050–$583,750 | $583,750+ |
Short-term capital gains tax: pay this on stock you've held for less than a year
If you make a profit selling stocks you’ve held onto for less than a year, you have to pay short-term capital gains tax. The short-term tax rate is the same as your regular income tax rate — meaning it’s typically higher than long-term capital gains tax unless you have a very low annual income (less than $11,000 for single filers and less than $22,000 for married filing jointly).
How much capital gains tax might I pay?
Imagine you’re a single filer earning a $70,000 salary. The long-term capital gains tax rate for your income bracket is 15%. The tax rate for short-term gains is the same as your ordinary income tax rate — 22% for a single filer in this income bracket.
Here's how much you'd pay depending on whether you made a gain of $10,000, $25,000, or $50,000, and based on whether you held the asset short term or long term. You can see that it makes a lot more sense from a tax perspective to hold off on selling stock until you've held it for a year if you can afford it—you'll keep more of your money in your pocket.
| Gain | Short-term tax (22%)* | Long-term tax (15%) |
| $10,000 | $2,200* | $1,500 |
| $25,000 | $5,500* | $3,750 |
| $50,000 | $11,000 | $7,500 |
Data from the IRS
Reducing capital gains tax through tax-loss harvesting
You can reduce your capital gains tax by selling low-performing stocks. This strategy, called tax-loss harvesting, is the process of selling investments that show a loss to reduce your taxes. Always consult a financial professional before pursuing this strategy.
If you sell stocks at a loss, you can subtract that loss from your capital gains. If those losses are more than your gains, you can write off up to $3,000 per year to reduce your income tax. Any losses above $3,000 will carry over to next year.
When to sell stock for a down payment
Once you’ve assessed your tax liabilities and decided which stock to sell for the down payment on your house, consult with several financial professionals who are qualified to give you expert advice.
Meet with a tax professional
The tax implications of selling stock can get complicated and you want to make sure you're making the right decisions for your financial security. Always meet with a tax or accounting professional to help you sort through them.
Consult with a mortgage lender
Before you sell your stock, discuss your strategy with a mortgage lender. Buying a house and selling stock are big financial decisions, so ask the experts.
When you meet with your mortgage lender, discuss the following:
- Pre-approval to determine your budget: A mortgage lender can tell you how much financing you are pre-approved for. That amount can help you set your budget and decide how much stock to sell.
- Financing options and down payment: If you're a first-time homebuyer or a veteran, you may qualify for a loan with a lower down payment requirement. FHA loans are another low-down-payment option since they require just 3.5%—although you'll be required to pay mortgage insurance for the life of the loan (unless you refinance to a conventional loan down the road).
- Personalized recommendations based on your finances: Tell them about your income, savings, and debt. The mortgage lender will use this data to advise you on how to proceed.
Alternative financing options: Selling stocks to buy a house may make sense for you, but other options, such as down payment assistance programs or using your 401k may be more suitable for your situation. A financial professional can help you properly assess your situation to decide which is the best option for you.
Alternatives to selling stock to buy a house
Down payment assistance programs
Down payment assistance programs are government or non-profit initiatives that help homebuyers pay down payment or closing costs. Each program is slightly different. Some offer grants, and others provide no-interest or forgivable loans.
You need to meet some requirements to qualify for these programs, like:
- Being a first-time homebuyer
- Having an income below a certain threshold
- Living in the home for 3-5 years
Down payment assistance programs don’t always make sense for everyone. But if you don’t have long-term stock options and meet the requirements, the programs might be a good fit.
Here are some popular programs available to homebuyers nationwide.
Sometimes there are assistance programs specific to your area, so research your state and city to check.
Gift funds
Gift funds are funds a family member or close friend gives a homebuyer to help cover the down payment or closing costs. These funds are not a loan, so there's no expectation of paying them back.
Gift funds under $17,000 aren't taxed, according to the IRS. If you have someone in your life who is willing to give you the money, you might be able to avoid selling your stocks.
To receive a gift fund, you'll need a letter of explanation to show your mortgage lender. The letter typically includes:
- The giver’s name, address, and phone number
- The relationship between the giver and receiver
- The gift fund amount
- A statement saying that it does not need to be repaid
Low down payment mortgages
In certain circumstances, you might be able to get a low or no down payment mortgage from a federal program. These loans typically require 0–5% down, significantly lower than the recommended 20%. But if you put less than 20% down, you'll have to pay additional private mortgage insurance (PMI) until you have 80% equity in the home. This will give you higher monthly mortgage payments.
Here are the most common low down payment mortgage programs and their eligibility requirements:
| Types of low down payment mortgages | ||||
| Conforming (Fannie Mae and Freddie Mac) | FHA | USDA | VA | |
| Minimum down payment | 3% | 3.5% | 0% | 0% |
| Eligibility requirements | Must meet income limits (vary by area) | 500+ credit score, 43% debt-to-income ratio | Property must be eligible, buyer must meet income requirements (vary by area) | Must be active-duty military or veteran, funding fee |
Use a high-interest savings account
If you decide not to sell stock to buy a house and want to save up the money instead, one good option is a high-interest savings account. You get all the benefits of a savings account (the value of your money won't go down with the market) along with a higher interest payout that will compound with your savings.
Get a smart agent on your side
When it comes time to actually buying a home, the best person to answer any questions you might have about home-buying is an experienced local real estate agent. As with any type of professional, you should compare different real estate agents and choose the one who best fits your needs.
Clever lets you compare multiple agents, all of whom are top performers in their markets and come from top brands and brokerages. They’re familiar with every aspect of the home buying process and can advise you on all your options, every step of the way. Plus, you can qualify for up to $500 cash back when you buy with a Clever agent. Take a short quiz and get matched with local Clever agents in your area.
FAQ about selling stock to buy a house
Is it smart to sell stock to buy a house?
It can sometimes be smart to sell stock to buy a house, but it depends on several factors that are best to consider with a financial advisor. The IRS taxes capital gains, including stock sales, and you will lose out on any potential increase in value those stocks may make in the future—even if you use the money for a down payment.
Do you pay capital gains if you sell stock to buy a house?
Typically, you'll have to pay tax on capital gains if you sell stock to buy a house. Using the money for a down payment on a house won't stop you from paying capital gains. The amount you pay depends on how long you've held the stocks, your income tax bracket, and whether or not you took any losses with the sale of the stocks.
Can you take money out of a mutual fund to buy a house?
Yes, you can take money out of your mutual fund to buy a house. But you’ll likely have to pay tax on the withdrawal. Also, check with your financial institution first about any fees you’ll face for withdrawing. Some institutions, for example, charge fees if you withdraw from your fund less than a year after purchase, while others charge a maintenance fee if your funds fall below a certain threshold.
Disclaimer: The information provided in this article is for informational purposes only. It is not intended as legal, financial, investment, or tax advice, and should not be relied upon as such. Consult a licensed financial advisor or tax professional regarding your personal financial situation before making any decisions.
