Selling a House You’ve Owned About a Year: Taxes and Costs

Plans change. A new job, a divorce, a growing family or a house that just isn’t working can all mean selling sooner than you expected. If you bought about a year ago, the taxes and costs of selling work differently than they do for a long-time owner. Here’s what to check before you list, and the questions to bring to a tax professional.

Why an early sale can cost you

Buying and selling both cost money, and a year of rising value may not cover them. On the selling side, commissions, transfer tax and other closing costs come straight out of your price.

Say you bought a house in Fremont for $900,000 and sell it a year later for $950,000. If you pay 4.8% in total commissions (our guide to agent commissions in California explains what sellers pay now), that’s $45,600. The county transfer tax adds $1,045. Most of the $50,000 increase is gone before you count the smaller closing costs or what you spent when you bought. In a city with its own transfer tax, it costs more; our breakdown of seller closing costs covers each one.

Those same costs also shape your tax. Selling expenses reduce what the IRS counts as your amount realized, and some of your purchase costs, such as transfer taxes, owner’s title insurance and recording fees, add to your basis. After a short ownership, the taxable gain may be small, or the sale may produce a loss. A loss on the sale of your main home isn’t deductible.

The two-year rule for the home sale exclusion

The federal exclusion of up to $250,000 of gain, or $500,000 for a married couple filing jointly, generally requires that you owned the home and lived in it as your main home for at least 24 months of the five years before the sale. At one year, you can’t meet that test.

You may still qualify for a partial exclusion if the main reason for selling is one of these:

A work-related move, such as a new job at least 50 miles farther from the home than your old workplace
A health-related move, such as moving to care for a family member or on a doctor’s recommendation
An unforeseeable event, such as a death in the household, a divorce or legal separation, a job loss that qualifies for unemployment, multiple births from one pregnancy or the home being condemned or damaged in a disaster

The partial exclusion is based on how long you owned and lived in the home. A single owner who lived there 12 months and moved for a qualifying job could exclude up to 12/24 of $250,000, or $125,000. For a married couple filing jointly, each spouse’s amount is figured separately and added together.

If no exception applies and you’re close to the two-year mark, the date you close can make a large difference in tax. It’s worth comparing what you’d owe now with the cost of waiting.

Short-term or long-term: count the days

Any gain that isn’t excluded is a capital gain, and the federal rate depends on how long you held the home:

One year or less: short-term gain, taxed at your ordinary income rates
More than one year: long-term gain, taxed at 0%, 15% or 20% depending on your income

For real estate, the IRS says to start counting on the day after you received title, or the day after you took possession if that came first. The day you sell counts. That means selling on the one-year anniversary of your purchase is still short-term. The IRS’s own example: an asset bought June 17, 2024 and sold June 17, 2025 was held not longer than one year, while one sold June 19, 2025 was held longer.

California doesn’t have a lower rate for capital gains, so the one-year line doesn’t change your state tax. The Franchise Tax Board taxes all capital gains as ordinary income.

California withholding at closing

When California real estate sells, escrow generally withholds 3 1/3% of the sale price for the Franchise Tax Board unless the seller certifies an exemption on Form 593. One exemption is especially useful after a short ownership: if the home was last used as your principal residence, no withholding is required, even if you didn’t live there two years.

An exemption from withholding isn’t an exemption from tax. You still report the sale and pay any tax due on your return, and any amount that was withheld is credited against it.

Check your loan for a prepayment penalty

Not all mortgages have a prepayment penalty. When a loan does, it typically applies if you pay off the whole balance, for example by selling, within a set number of years.

For a home loan, federal rules allow a prepayment penalty only on certain loans whose rate can’t go up, that meet the qualified mortgage standards and that aren’t higher-priced. The penalty can’t apply after the first three years, and it’s capped at 2% of the balance you pay off in the first two years and 1% in the third. A lender that offers a loan with a penalty must also offer you an alternative without one. Your loan documents will say whether yours has one, and your payoff statement from escrow will show it.

Other options to weigh

Selling isn’t the only answer to a change in plans, and the right choice depends on your numbers.

Waiting: if you’re a few months from a long-term holding period or from the two-year mark, the tax difference may be worth comparing with what it costs to hold the house longer.
Renting it out: keeping the house as a rental can buy time, but it brings landlord rules and its own tax questions. See whether to sell or rent out your house.
Selling as-is: if the house needs work or you need to move quickly, a direct sale avoids repairs and showings. EZ Home Offer charges no commissions, covers typical closing costs and can close in as little as 3 days once title is clear. A cash offer is usually below full market value, though, so compare the net amounts.

Before you sign a listing agreement or a purchase contract, ask a CPA or enrolled agent to run your purchase and sale numbers, check whether a partial exclusion applies and confirm your holding period.

Sources

General information about California rules as of October 3, 2026, not legal, tax or financial advice. Laws change and every situation is different, so check the details with an attorney, CPA or other professional.