A common question that some home buyers may have is how long they should hold onto a home after they purchase it before selling. Some buyers will purchase a home and stay there for years or even decades while other buyers would like to sell their home just a few years after purchase. There are many reasons a buyer may want to sell a home shortly after purchase such as relocation or upgrading due to family expansion. Buyers who are flipping a home for profit in a short amount of time is a very different scenario and will be a topic for another day.
How long should I hold onto my house before selling?
Industry best practices usually suggest that a homeowner keep their home for about 5 years before selling, and at least two years living there. The reason is due to a few different factors. For one, in a typical market, a home will not gain enough equity to make it worth selling. When a home is sold there are fees, taxes, and closing costs that will likely not be recouped in just owning a home for a year or two. Ideally, the selling of a home will provide a profit upon selling so many homeowners won’t want to sell unless they will make a profit or at least break even after closing fees, interest payments and moving costs. Another reason is the issue of capital gains tax. Capital gains tax has to be paid on any home owned as a primary residence for less than 2 years.
What if I need to sell my home in under 2 years?
Sometimes life happens and plans change so a homeowner will need to sell their home in less than two years. Before selling, consider offering the home as a rental property. If that is not an option and the property must be sold then understand you’ll have to pay Capital Gains Tax. What you’ll have to pay with this tax varies depending on your profit, what you sold the home for, and what your income is in a given year. Reinvesting proceeds from the sale into another residence you plan on owning for at least two years may also help you avoid taxes.
Benefits of staying in a home for at least 5 years
While it can be very tempting to want to upgrade your primary home every few years, keep in mind all the fees that come with selling and buying a home regularly. Again, if you’re selling because you’re flipping a home you lived in then this is a very different scenario. If you’re not flipping a home then there are both personal and financial benefits to staying in a home for at least five years. If a primary home is owned for 2 or more years of 5 and lived in for at least this time, a single homeowner can exclude up to $250,000 of capital gains. If married filing separately, each can exclude up to $250,000. If married filing jointly, together can exclude up to $500,000 of capital gains. Aside from fees and capital gains, there is also the financial factor of equity that a home can gain in 5 or more years. Remember, a home is typically a great investment.
Personally, there are also other benefits to staying in a home for a few years. For example, if you have young children, stability is great for them especially if your home is close to their school. It may also be nice to set down some roots in a nice neighborhood and meet new neighbors, plant a garden or do some home projects you’ve always wanted to tackle.
Do you have concerns about selling your home in less than 5 years? Are you in the market to buy or sell your home? Call and text me at (720) 323-4176 or email me at [email protected]
