Yes, you can sell your home with a two-year mark and you may qualify for a key capital gains tax exemption, but this is not necessarily recommended as market conditions and sales costs outweigh your profits.
If you’re thinking about selling your home in two years, you’re not alone. Life changes rapidly, and many homeowners find themselves considering their movements faster than expected. However, before you list your home, it is important to understand how the 2 year mark will affect your revenue.
In this Redfin article, we will analyze why two-year rules are important and why the factors affect your decision. Whether you’re ready to sell your home in Sandy Springs, Georgia, or considering options in Wilson, NC, you need to know what you need to know.
In this article:
Can I sell my house in two years?
Why the 2nd year mark is important: Understanding capital gains tax exclusion
What happens if you sell it two years ago?
Beyond Tax: Other Financial Factors to Consider
Instead of selling two years ago (if you’re not ready yet)
Tips for selling your home in 2 years
Will it be on sale in 2 years?
FAQ: Selling your house in 2 years
Can I sell my house in two years?
Yes, you can sell your home in two years. Doing so will qualify for valuable tax benefits such as capital gain exclusion. Before listing, make sure you meet both ownership and residence requirements.
Why the 2nd year mark is important: Understanding capital gains tax exclusion
One of the biggest reasons homeowners are cautious about selling their homes in two years is that they have a potential impact on capital gains tax. The IRS offers a large tax credit to homeowners who meet what is called the “Five Year Two Year Two Year Rule.”
This rule allows many sellers to exclude capital gains (single) or up to $500,000 (if married and jointly filed) from the sale of major residences.
Who is subject to the 2-year rule for five years?
To qualify for this exclusion, two important criteria must be met:
Ownership Test: You must have owned the house for at least two years. Test Use: For at least two of the past five years, they must have lived in the home as their main residence, leading up to sales.
If you meet both, you may avoid paying federal taxes for most, or even all of your home sales profits.
Why is this important to homeowners?
For homeowners in markets where property values have increased, this tax exclusion can lead to tens of thousands of dollars in savings. Conversely, selling before the two-year mark usually means that your profits (if any) will be taxed as short-term capital gains. This is usually taxed at the normal income tax rate.
What happens if you sell it two years ago?
If you are considering selling your home in two years, it is important to understand the risks of selling as soon as possible. Generally, selling before the two-year mark means you are not eligible for an exclusion from the IRS capital gains tax.
Short-term capital gains
Homes sold two years ago are usually classified as short-term capital gains rules. This means that profits from your home sales will be taxed as normal income at regular federal tax rates.
For example, if your income is placed in the federal tax range of 24%, short-term profits are taxed as normal income, so home sales profits are also taxed at 24%. In contrast, long-term capital gains available after owning a home for at least two years are usually taxed at a lower rate.
Are there any exceptions?
Even if the IRS sold two years ago, there are several circumstances that allow homeowners to claim partial capital gains tax exclusion.
These exceptions usually apply when the reason for sale falls within a certain difficult category, such as:
Transfer of employment that requires moving at least 50 miles away. Health-related reasons such as having to move for medical care and dealing with health conditions. Unexpected situation. It may include events such as divorce, unemployment, multiple births (such as twins, Mielett), or natural disasters.
If you qualify for an exception, you may be able to exclude a proportional portion of your capital gains based on your time you lived in the house. Before making a decision, we recommend consulting with a tax professional who will help you understand the eligibility of these exceptions and help you calculate your potential tax liability.
Beyond Tax: Other Financial Factors to Consider
Even if you meet the IRS timeline, you should ensure that you are financially prepared for the other costs and risks associated with early sales.
Have you ever built enough equity?
Equity is part of your home that you really own. It’s the difference between the market value of your home and what you still owe on your mortgage. After just two years of ownership, many homeowners have not built up many shares, especially when they pay a small down payment or buy during periods of slow home prices.
Before listing, check your current value for your home using a tool such as the Redfin Home Value Timator and compare it with your remaining mortgage balance.
True cost of selling early
Even the two-year mark sells a house – accept that there are some expenses that can dig into your revenue.
The typical budget costs are:
Real Estate Agents Committee: Usually 5%-6% of the selling price. Closure fees: These may include transfer tax, title fees and other management fees. Home Repairs and Improvements: Being ready for your home market often means investing in repairs, staging, or updating curb appeals. Moving Cost: Relocation is not free, whether you hire a professional mover or do it yourself. Mortgage-related fees: Some mortgages come with prepayment penalties if they sell too early. Please check the terms of the loan.
By the time you add it all together, you’ll see that there’s not much room for profit, especially if your home is not highly valued.
Instead of selling two years ago (if you’re not ready yet)
Even if you feel the pressure of selling, but haven’t reached the two-year marks completely, don’t worry, there are options worth considering. Depending on your financial situation and future plans, refraining from selling your home in two years will save you money and build more equity.
Rent your house
One option is to rent a house until it is eligible for capital gains tax exclusion. You are responsible for becoming a landlord, but it will help you cover your mortgage payments while you wait for your watch.
If you are going this route, remember.
When it’s time to sell, you still have to meet the IRS residency requirements (I’ve lived in the house at least twice in the last five years). Rental income may help offset the cost of holding, but you should consider the landlord’s obligations, such as maintenance and tenant management.
Refinance and staying longer
If your main reason for wanting to sell is your financial burden or monthly payments, refinancing your mortgage can be a sensible alternative.
Benefits of refinance:
By ensuring better interest rates, you will reduce your monthly mortgage payments. The loan period will be extended to make payments more manageable. Free up monthly cash flow without the need to sell.
If refinancing is not an option, simply staying longer may be the best financial decision. Especially when it’s close to the 2nd year mark.
Why can I wait:
It is subject to capital gains tax exclusion. Your home may be even more valued. You build more equity and reduce the risk of losing and selling.
Tips for selling your home in 2 years
If you have reached (or are about to reach) the two-year mark, you are in a better position to maximize your profits and minimize your tax liability. However, despite tax benefits, sales success still depends on wise planning and preparation.
Here are some tips to help you make the most of your home in two years.
Review your eligibility for tax exclusion: Double check that you meet both the ownership and residence requirements of the IRS Capital Gain Tax exclusion. If you are unsure, consult a tax professional. Understanding the local market: The real estate market can change quickly. Work with your local Redfin agent to get a comparative market analysis (CMA) and understand pricing trends in your area. Know the current value of your home: Use tools such as Redfin Home Value Estimator to get a general idea of what your home deserves before listing. Sales Cost Budget: Even after two years, you should still consider typical home selling costs such as agent fees, closure fees, and repairs and staging. Time to sell strategically: If possible, list your home during the strong sales season in your area to attract more buyers and maximize your selling price. Prepare your home for the market. Spend time cleaning, tidying and small upgrades that can enhance the appeal of your home. Agents can help you decide which improvements are worth it. Talk to both your real estate agent and your tax advisor. With professional advice, you can navigate both the real estate process and the tax impact, making informed decisions at every stage.
Will it be on sale in 2 years?
Selling your home in two years will give you the opportunity to earn tax benefits and appreciation for your home, but that’s not always the right move for everyone. Your decision should take into account your fairness, market conditions, and personal financial goals.
If you’re not sure, consider talking to a local Redfin agent or tax professional. They can help you weigh your options and determine if now is the right time for sale, or if waiting a little longer makes more sense.
FAQ: Selling your house in 2 years
Can you sell your home accurately with the second year mark?
Yes, you can sell your home with the 2 year mark. By hitting this milestone, you will often be subject to an IRS capital gains tax exclusion, but make sure you meet both ownership and residence requirements.
>>Read: How long should I live in my house before selling it?
How fair should you have before selling in two years?
Although there are no rules, it is wise to have enough shares to cover sales costs, such as agent fees, closure fees, and unpaid mortgage balances. Many homeowners wait for it to sell without incurring a loss.
>> Discovery: How to build fairness in your home
What happens if you sell it just two years ago?
Usually, selling even one day before the two-year mark means your profits will be taxed as short-term capital gains. This is taxed at the normal income rate. However, exceptions may apply to job changes, health issues, or unexpected circumstances.
>> Dive in: Should I sell my house now?
Should I rent a house instead of selling it early?
Rentals can be a smart option if you still need to move rather than the 2 year mark. Remember, you still need to meet the IRS 2 year 2 year residency rules to qualify for tax exclusion.
>>Checkout: How to rent a house: 14 tips All homeowners should know before they start
How do I find the value of my home?
Using recent sales and market trends in your area, you can estimate the value of your home using the Redfin Home Value Timator, which provides data-backed estimates. For a more accurate rating, consider contacting your local Redfin agent for a professional comparative market analysis (CMA).
How can I calculate the potential loss?
To estimate the potential loss, subtract the total sold costs, including the agent’s committee, closure fees, remaining mortgage balances, and repair or stage costs, from the home’s current market value. If the outcome is negative, it is your potential loss.
>>See: How much do you need to sell your house to break?
