Sell A House Before 2 Years In San Francisco Bay Area

After purchasing a property, you have the freedom to make any changes you wish. Certainly, you can promptly list your property for sale after acquisition, but it’s generally advisable to retain ownership for a minimum of 2 years to avoid significant tax consequences.

As per data from the National Association of Realtors (NAR), the typical duration of homeownership in the United States spans 13 years, and this duration is prudent for various reasons. However, what if circumstances necessitate an early sale, such as relocation due to employment, financial strain caused by a medical crisis, or a family-related move to another state?

Sell A House Before 2 Years In San Francisco Bay Area

If time is of the essence and selling now is imperative, we’ve compiled the most effective strategies to facilitate the sale of your property within the 2-year timeframe while mitigating tax implications.

Capital Gains on Your Property

Ideally, your property could have gone up in worth during the time you’ve owned it. This could lead to a sale at a profit, called capital gains.

However, you may not keep all of the profit because it’s subject to capital gains tax. This tax is based on the increase in your home’s value, your income tax rate, and how long you’ve owned the property before selling it.

Capital Gains on Your Property in San Francisco Bay Area

If you’re selling your home within 1 year of owning it, this will be classified as short-term capital gains. You will need to pay taxes of up to 37% on the profits, depending on your tax bracket.

If you’re selling a house after 1 year of owning it but before the 2 years are up, this will be classified as long-term capital gains, you will need to pay capital gains tax for an average of 15% on the profits.

Exception to Capital Gains Taxes

The tax benefit kicks in when you sell your home after residing in it for 2 years.

This is outlined in Section 121 of the tax law, also called homeowner exclusion. It allows you to avoid paying tax on up to $250,000 of the gains if you’re single, and up to $500,000 if you’re married and filing jointly.

Yet, you can still safeguard your gains by living in your home for a while. For instance, if you lived there for one year, you could get a 50% tax benefit. That means, gains up to $125,000 for singles and $250,000 for married couples are protected.

capital gains taxes when you sell your house in 2 years in San Francisco Bay Area

If you lived there longer, you could claim a higher tax benefit percentage. You’ll be subject to the long-term capital gains tax rate instead of the short-term rate.


The 2 out of 5-Year Rule in Real Estate

For a property to be considered your primary residence, and thus, eligible for the maximum amount of tax shield mentioned above, you must live in it for two years in the five years of owning it.

Therefore, if you own more than one investment property, it is typically a good idea to live in it for at least two years. You can then have two primary residences, as the two year requirement need not be continuous.

This is known as the 2-out-of-5-year rule in real estate.

However, there are exceptions to this requirement, and it is still possible to qualify for maximum exclusion of capital gains if the following is applicable to you:

  • You or your spouse is a service member (military, peace corps, police) during your tenure of the home.
  • You converted your home, or a portion of it, into a commercial or rental property.
  • You bought the home and are selling it in a like-kind, or 1031 exchange (read more below).

While you may not be able to totally avoid capital gains taxes when selling a house before two years, you can minimize the tax penalty for selling by exploring the following:

Cost Basis Adjustments

You can lower tax fees by increasing the value of your property.

For instance, if you purchased your house a year ago for $100,000 and now you’re selling it for $160,000, you’ll owe capital gains taxes on the $60,000 gain.

But if you’ve upgraded your home, like adding a patio, installing central air, and new siding, costing $25,000 in total, you can increase your property’s value. This amount gets subtracted from the $60,000 gain, reducing the taxable amount to $35,000. Thus, you’ll pay less in capital gains taxes.

Cost Basis Adjustments in San Francisco Bay Area

Partial Capital Gains Tax Exemptions Per IRS Guidelines

You can also check if you qualify for a partial exemption on capital gains. The Internal Revenue Service (IRS) grants these partial exemptions if you need to sell your home due to the following reasons:

Work relocation

The IRS considers situations where you, your spouse, or co-owner must relocate for work at least 50 miles from your current home. You can rent out your property or sell it to finance the down payment for a new property closer to your new job.

If this occurs, you may be eligible for a partial exemption from capital gains taxes when selling your home.

Work relocation In San Francisco Bay Area

Health Emergency

You can avoid paying taxes on the money you make from selling your house if it’s because of health issues. Maybe your doctor tells you to move to a warmer place, or you need to get treatment for yourself or a family member somewhere else. Or maybe a sick family member needs you to live with them and take care of them, so you have to sell your house and move in with them.

Health Emergency in San Francisco Bay Area

Other unforeseeable events

You can have a reduced tax penalty for selling before two years have passed if you are forced to do so due to the following:

  • Natural disasters such as floods, earthquakes, hurricanes, storms, and so on
  • Man-made disasters
  • Act of terrorism
  • Unforeseen life events such as a divorce, a death in the family, or loss of a job that would drastically reduce your household income and render you incapable of paying your living expenses and real estate taxes, and thus, make you eligible for unemployment compensation
  • Other events that may be deemed unforeseeable by the IRS
Other unforeseeable events in San Francisco Bay Area

You may need to get in touch with an accountant in order to determine how much exemption you qualify for before selling your house.

Take Advantage of the 1031 Exchange on Investment Properties

If this property may be an investment, then learn from real estate experts and flippers. They use a tax break called a 1031 exchange.

Flippers usually own a property briefly before selling, so they face capital gains taxes, right?

Wrong. They have strategies to avoid taxes.

Under Section 1031 of the tax code, you can delay paying capital gains taxes. You can do this even if you sell a property within two years, as long as you use the money to buy another investment property. To use this, you must close on the new property within 180 days.

1031 exchange on investment properties in San Francisco Bay Area

But remember, selling your main home doesn’t qualify for a 1031 exchange.


When you buy a home, especially with a mortgage, it may take time to gain equity. Equity is the gap between your mortgage balance and your home’s value.

So, as you keep up with your monthly payments, your equity grows. But remember, early on, a big chunk of your payments covers interest. If you sell too soon, you could lose money.

How Long Should You Live in a House Before Selling It in San Francisco Bay Area

You Must Be Able to Build Enough Equity

If you list your house with a realtor, their fees typically run around 6%, potentially taking a chunk out of your home’s equity. Closing costs are another expense to consider. If your equity is low, you may struggle to cover the down payment on another property.

In a bad situation, if your home’s value drops while you own it, you could end up selling it for less than what you paid.

You Must Be Able to Build Enough Equity in San Francisco Bay Area

Consider Renting Out the Property First

If you’re thinking about relocating, you may want to rent out your property until the two-year mark.

The money you get from renting can help cover your mortgage and let you keep adding to your ownership stake. But remember rental income counts as regular income, so you’ll owe taxes on it.

Holding onto the house for two years before selling can also lower your tax bill and give the property more time to increase in value, potentially offsetting any remaining tax costs.


Selling a House Before Two Years In San Francisco Bay Area

Real estate, a solid investment for many, has proven its resilience despite occasional setbacks in recent decades. Currently, property prices are steadily rising, affirming its enduring appeal.

To optimize your asset’s growth, minimize capital gains taxes, and secure a lucrative sale, experts generally recommend holding onto your property for at least two years.

However, not everyone has the luxury of time…

Although there may be penalties for selling prematurely, there are legitimate strategies to sell your property, sidestep capital gains taxes, and still profit handsomely.

At We Buy Houses in San Francisco Bay Area, we specialize in facilitating swift, hassle-free sales without the need for traditional real estate agents. We even cover all closing costs, ensuring you receive exactly what we offer.

Simply fill out the form below, and we’ll connect you with our network of local cash buyers who are well-versed in market dynamics and ready to make a fair offer!

For assistance in selling your home, reach out to us at (408) 557-7554. We’re eager to assist you!

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The Easiest Way To Sell Your House Fast In San Francisco Bay Area

You’re in the driver’s seat when you accept our cash offer for your house. We make the process simple, fast, and easy to follow when working with us. You have no obligation to accept our cash offer for your home when contacting us for a fair cash offer for your home. No matter the reason you want to sell your house, we want to buy your home as is. Remember that you get many benefits that include no real estate agent commissions, no cleaning, no improvements, and no stress. Our cash offer for your as-is house assures you of fast cash payment at closing with a reputable Title company. You can count on our company to give you a fair cash offer for your home! If you’re still thinking, “I need to sell my house fast”, calling us could be your best decision all day. 🙂

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Gagan Saini

Author: Saini

My name is Saini, and I founded the We Buy Houses in San Francisco Bay Area team with years of experience in the real estate industry. I have assisted numerous sellers in selling their homes quickly, “AS-IS”, and for a fair price.

He’s been featured in multiple publications including Yahoo Finance, GoBankingRates, LegalZoom, The Mortgage Report, Apartment Therapy, US News and World Report, and SuperMoney among others.

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