Can you receive a penalty if you sell a house less than five years after you have purchased it?

Answer 1

Ok the best way I know how to answer your inquiry is to send you to big brother. You need to get the actual and specific answer from the source relating to taxes which is what I am assuming you are talking about when you say "penalty".
In addition to the so called "penalty" question there are costs and profits that you will need to concern yourself with on real property sale.
So having said all that here is where you need to go and do your research:
IRS: 3.6 Itemized Deductions/Standard Deductions: 6. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses): http://www.irs.gov/faqs/faq3-6.html
IRS: Gain and losses on real property:
http://www.irs.gov/publications/p544/ch01.html
IRS: Selling your Home Publication: http://www.irs.gov/publications/p523/index.html and http://www.irs.gov/publications/p523/ar02.html
IRS: Home Sale Exclusion rules, publication: http://www.irs.gov/newsroom/article/0,,id=105042,00.html
Not included in the above research links are research links pertaining to tax liabilities to your state and that's because I don't know your state. Have fun in the research.
Buena Suerte

Answer 2

A penalty implies that you violated an agreement. So assuming that the question was in regards to a mortgage on the property, it will depend on the mortgage terms. The correct answer lies within your mortgage contract. Pull it out and read it. If you do not understand it, call the lender and/or closing agent used when you bought the home.

Sometimes if a special first time homebuyer program is used there is a "recapture" fee if it is sold within a specified period of time from date of purchase. The intent of this type loan is to assist a person with buying a home that otherwise may not qualify, not to make a profit by "flipping" the home and thus abusing the program.

Sometimes a sub-prime lender will assess a pre-payment penalty as part of the "risk" they take in giving you a loan with less than a 580 FICO credit score. The thinking is that if they approve you and then you refi in a year they will loose out on the interest they otherwise would collect, so the incentive is to keep the loan when the interest portion of the loan is at its greatest proportion of the payment.

From a tax perspective, there is no penalty per se. There is a capital gain tax on yoru personal residence IF you sell it and did not live there 2 yrs. within a 5 yr window period to the date of selling from the date of purchase. If you sell before you have lived there one year the tax is your regular tax rate. Over a year but under 2 yrs, it is treated as long term capital gains and is taxed at 15% UNLESS you are in a low income bracket and pay the lowest rate, that being 10% regular income tax rate then your cap gain tax may also be 10%. Consult your tax advisor for the best advice if this is your situation.

I am neither an attorney nor an accountant therefore this is not tax nor legal advice. It is information I am sharing based upon my knowledge and experience as a real estate broker who has to deal with such issues when people buy and sell real property.

BTW: The exemption value on the cap gain tax is $250K for singles, $500K for married couples, above your cost basis, provided you otherwise qualify.

It would also help get better answers of your question was worded more clearly. Good luck to you!

Answer 3

From the answers you already received on the topic, I can only say the following: Taxes and penalty are two different things.

Taxes: If you have owned and lived in the property for at least two years, you do not pay capital gains taxes on the increase of the value.

Penalty, which is what you are asking about, is 100% related to the mortgage contract you signed five years ago. Yes you CAN receive a penalty if you sell a house less than five years after you have purchased it. There is a page (one of the many, I know) in that contract that states whether you would pay a penalty if you pay off the mortgage earlier, and if so, how much that penalty would be. If you can not find your contract or are not sure, get in touch with your mortgage company and ask them for the information, to fax you a copy of that part of the agreement That way you can see it for yourself.

Answer 4

You can be charged a penalty on your mortage if your mortgage has a penalty in it (most don't).

Otherwise you may have to pay income taxes if you make a profit and haven't lived in the house for at least 2 of the last 5 years.

Answer 5

Most everyone who answered seems well intentioned. I assume that you are talking about a prepayment penalty, and that varies depending on lender. They typically range from 2-5 years based upon my experience, or, are a factor of so many months interest charged upon the paid off principal balance (i.e., 6 months interest on 80% of principal balance. However, not all lenders charge a prepay penalty; also, you can request that one not be included. Some charge a little higher rate if there is no prepay. Usually it amounts to about a 1/2 percent interest difference; sometimes less. You need to ask your lender/broker ahead of time to make sure because the answer is not identical to each lender.

Answer 6

Yes, we had to pay a 15,000 penalty. All banks are different, call your mortgage company to see if there is a penalty fee or not. I have bought and sold 3 homes (one) penalty. Mainly because we went after a very low interest rate with a stipulation (penalty). Thinking we would keep this home, but things change, we turned it over before the 5th yr. and enough said.

Answer 7

Generally if you sell a house and then buy with a larger mortgage than originally with the same bank lender they will not charge you a penalty. That is what happened in our case.

Answer 8

Most likely not that long, though every mortgage has its own rules. Mine is one year. The lender puts these penalties in the contract to ensure they are making some sort of money one way or another. Check with your lender.

BTW, if you indeed would incur a penalty, roll your current mortgage into your new property if you are moving into another house and if it would be a larger mortage than your current. You would not recieve a penalty if you are not cutting ties with your lender.

Answer 9

You're usually supposed to live in the house for 2 years before selling it. Check with your mortgage lender. You don't have to pay capital gains taxes on your profits from the sale if the house was your primary residence and the sales price was under $500,000.

Answer 10

If the loan on the house has a prepayment penalty, yes you may incur penalties.