Should I sell my house? 3 key financial considerations

These 3 financial considerations can help you evaluate your situation to determine when you should sell a house.

1. Your home’s worth
2. The costs of selling a house
3. The tax implications of selling a house

An Ameriprise financial advisor will help evaluate the financial impacts of selling your home based on your financial goals and priorities.

1. Your home’s worth

The value of a house can change over time. Whether you purchased your home decades ago or last year, one of the first steps to take when considering whether you should sell your house is to evaluate how much your house is worth in the current housing market. Here are three common approaches:

• Research real estate websites. Find out how much similar homes in your area have sold for. Many websites can also give you a rough estimate of how much your home is worth.
• Consider an appraisal. A formal appraisal will provide you with a more accurate value of your house based on comparable home sales in the area.
• Work with a real estate agent. Real estate agents will help determine an appropriate listing price for your home. Look online or ask for referrals to real estate agents who have experience in your neighborhood.

What is the difference between a seller’s market vs buyer’s market?

Factors such as seasonality and local economic conditions affect the value of your house and influence the decision of whether you should sell your house at that time.

These factors can create what are typically referred to as buyer’s and seller’s markets, normal parts of the housing market cycle which can impact your selling price.

• A seller’s market occurs when there are more prospective buyers than there are homes for sale. When housing inventory is low, prices tend to be higher. As a seller, you may be able to get more money for your property or sell it faster than you would in a buyer’s market.
• In a buyer’s market, an abundant housing inventory provides buyers with more housing options and an advantage in negotiating the purchase price. Your house could take longer to sell given buyers have more options. There also may be more competition from other home sellers in your price range.

When is the best time to sell a house?

The “best time” to sell a house may be a misnomer. When to sell is determined by a number of factors including personal finances, needs and the market. However, knowing when the better times to sell a house are, may help you sell at a higher price. Zillow cites April through July as offering better selling opportunities, depending on location. December through February tend to be more sluggish months for home sales in most markets due to cold weather and the holiday season.¹

This doesn’t mean you should wait to sell your home until the market is in your favor or that you can’t list your house in January. By taking into account housing market conditions and seasonality, you can set realistic expectations for a selling price and time on the market. 

2. Costs of selling a house

The cost of selling a house is a very important consideration. From cleaning to de-cluttering to painting, a lot can go in to getting your house in shape to sell. In addition to preparation costs before the home is shown to prospective buyers, expect the cost of selling a home to include:

• Realtor fees: The typical real estate agent’s commission is 2.5% - 3% of the home’s selling price, which means that the combined real estate agent fees for both the seller’s agent and the buyer’s agent fall within the 5% - 6% range. It’s not uncommon for the seller to pay the commission for both agents.²
• Closing costs: As a seller, expect to pay closing costs between 1% - 3% of the house price. This typically includes the home inspection, appraisal and title insurance costs.²
• Repair costs: Sometimes after the inspection, the buyer may ask you to make repairs before they purchase the home. As the seller, you don’t have to agree to make the repairs, but if you don’t, the buyer may not want to go through with the sale. Sometimes sellers list their home in “as-is” condition—meaning they are offering the home in its current condition and will make no repairs — which may result in fewer interested buyers.
• Concessions: If you’d prefer not to make the inspection repairs yourself, the buyer may accept other concessions instead. For example, common concessions include a lower purchase price or paying some of the buyer’s closing costs.

The bottom line: As a seller, you should be prepared to pay costs up to 15% of the home price.²

3. Tax implications of selling a house

Will you owe taxes on the profit from your home sale? The answer depends on several factors, such as how long you owned the house and whether it was your primary residence:

Capital gains on a home sale

Capital gains tax is one tax implication of selling a house that comes into play when selling property or any other investment that makes a profit. 

• Should you sell your house within a year of buying it, the tax treatment of the profit from the sale will be a short-term capital gain. This means you’ll have to pay normal income tax rates on the profit.
• If you owned the home for more than one year, the tax treatment of the profit will be a long-term capital gain. This will likely be much lower than your regular income tax rate.

Avoiding capital gains tax with a Section 121 exclusion

One way to avoid paying capital gains taxes is through a Section 121 exclusion, more commonly referred to as a primary residence exclusion. To claim the exclusion, generally the house must have been your primary residence for 24 months in the past five years before a sale.

The IRS allows single tax filers to exclude up to $250,000 of capital gains on a house through the primary residence exclusion. For example, if you’re single and bought your house for $600,000, lived in it the required amount of time, aren’t subject to other limitations, and sold it for $850,000, you won’t have to pay capital gains tax on the $250,000 profit. For married couples filing jointly, the exclusion amount is $500,000. Additional restrictions or limitations on the amount excluded may apply in certain circumstances. You should consider consulting with your tax professional before any sale.

Capital gains on a rental property

Because full-time rental properties are not eligible for the Section 121 exclusion, owners of full-time rental or investment properties will typically pay capital gains taxes.

However, with a 1031 exchange, owners can sell their investment property and immediately buy a “like-kind” property (normally, a similar property that costs the same amount or more) without paying capital gains tax on the profit from the first property. The caveat: A 1031 exchange is a tax deferral, not an exemption, so you will eventually have to pay taxes on profits from the sale. 1031 exchanges generally require the use of a qualified intermediary to facilitate the exchange and ensure compliance with the various tax requirements.

What happens if I need to sell my home at a loss?

Nobody buys a house planning to sell it at a loss, but based on market conditions or personal needs, you may find yourself in a situation you didn’t expect.

A loss from the sale of a primary residence is not tax-deductible. Because the IRS considers a house that you live in as a “personal-use property,” any loss you incur from the sale of the home is not deductible as a capital loss.

However, if you sell your rental property at a loss, you may be able to claim these losses as income tax deductions. Check with a tax professional if you find yourself in this situation.

For more information about the tax implications of selling a home consider IRS Publication 523 (Selling Your Home) or consulting a tax advisor.

Discuss selling your home with a financial advisor

There are many financial factors to consider before you decide whether you should sell your house right now. It’s a good idea to get help from an Ameriprise financial advisor, who will provide you with 1:1 financial advice based on your goals and needs. Doing so can help you feel more confident, connected and in control of your financial life.