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We’ve all heard the term ‘forever home’ before, but sometimes you just don’t end up staying in a home that you thought you’d live in forever. When my wife and I bought our forever home, we shortly thereafter moved out of it. We held onto it as a rental and eventually moved back in; you just never know what life has in store for you.
Here are some things to be mindful of when it comes to selling your house, as well as my recommendations about how soon after purchasing it you should do so:
First, my rule of thumb for selling your home is to sell it after you’ve lived in it for two out of the last five years. This will help you maximize the profits of your sale. You won’t have to pay a higher capital gains tax rate; in fact, you probably won’t pay any tax whatsoever. For a single person, you’re exempt from $250,000 worth of capital gains tax on any profit you have from the sale. For married couples, you’re exempt from $500,000.
If you’ve been in the house for less than a year, you’ll pay quite a bit in short-term capital gains tax at whatever your taxable income rate is. In short, there are significant tax advantages to staying in your home for a year and a day, and even more for staying in the home two out of the last five years.
Here are some things to be mindful of when it comes to selling your house, as well as my recommendations about how soon after purchasing it you should do so:
First, my rule of thumb for selling your home is to sell it after you’ve lived in it for two out of the last five years. This will help you maximize the profits of your sale. You won’t have to pay a higher capital gains tax rate; in fact, you probably won’t pay any tax whatsoever. For a single person, you’re exempt from $250,000 worth of capital gains tax on any profit you have from the sale. For married couples, you’re exempt from $500,000.
If you’ve been in the house for less than a year, you’ll pay quite a bit in short-term capital gains tax at whatever your taxable income rate is. In short, there are significant tax advantages to staying in your home for a year and a day, and even more for staying in the home two out of the last five years.
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My rule of thumb for selling your home is to sell it after you’ve lived in it for two out of the last five years.
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My rule of thumb for selling your home is to sell it after you’ve lived in it for two out of the last five years.
Some other factors to keep in mind are the rates of appreciation and growth of home values. We’ve had phenomenal appreciation and growth in local real estate values over the last several years. Since the 1940s, real estate has appreciated by 5% every year on average, and our own local market often appreciates at double-digit rates.
Once commission, excise tax, title, escrow, recording fees, and transaction management fees have been factored in, the typical cost to sell a house works out to be around 9% or 10% of the sales price. That’s why I recommend you stay in the home two out of the last five years; if the home appreciates 5% per year, you’ll make at least your sales costs back just by waiting, on top of the tax advantages.
Hopefully, this helped clear up some of the confusion surrounding the topic of selling your home. If you have any questions about today’s post, don’t hesitate to reach out to me. I’d love to speak with you.
