What Is the 5-Year Rule for Selling a House? There Are Actually Two

How do I decide if the 5-year rule applies to me?

Allen Studebaker, a top real estate agent in Scottsdale, Arizona, who works with over 71% more single-family homes than the average Phoenix area agent, shares information to help homeowners decide if it’s worth it to move from their primary residence in fewer than five years.

When it comes to buying and owning a home, the general advice is that it will gain more value the longer it is owned by the same owner, especially if the area where it’s located is growing or becoming more sought after. This is known as appreciation, and it comes from a variety of factors that influence each other to drive home values upward.

When homeowners need to sell their homes quickly, determining whether the sale is worthwhile can be confusing. This is where the five-year rule becomes important.

So what factors should be considered when you’re wondering if your home’s value has appreciated in the time you’ve owned it?

“The key thing for people to do is to gain knowledge of their market,” Studebaker says.

A major factor in determining whether the five-year rule applies is the current appreciation rate for homes in your area. The appreciation rate in the United States can vary wildly. In February 2025, the average appreciation rate was 3.2%, down from 3.8% a month ago and 6% in February 2024.

A slower appreciation rate may mean it takes longer to build enough equity to offset the costs of buying and selling a home. On the other hand, in a fast-growing market, homeowners might see enough value increase in just a few years to make an earlier sale financially worthwhile.

Use HomeLight’s online Home Value Estimator to find a ballpark estimate of your home’s worth right now. This free tool will give you an idea of what your home’s value is in real-time, compared to the purchase price, so you can gauge the appreciation.

What if I need to sell my home before five years?

Sometimes, the need to relocate less than five years after purchasing a home cannot be avoided. Life happens, but there are options other than selling that can help you build up enough equity in your home before putting it on the market.

A common option for people who do not want to sell their home yet before owning it for five years is to turn it into a rental property. You can explore renting it out for the long term or as a short-term vacation rental to delay selling while still earning income from ownership.

Vacation homes do well in states like Studebaker’s market, which is in a year-round warm part of the country. “Unlike some of the cold weather states, we have a lot of vacation rentals here,” Studebaker says.

He noted that while some regions experience harsh winters with snow and rain, Arizona’s mild and sunny climate makes it a popular destination for those looking to escape colder weather.

The other 5-year rule: Tax implications for selling your home

The IRS taxes capital gains from a home sale differently based on whether the property has been owned long-term or short-term. This distinction helps differentiate average homeowners from investors. Average homeowners typically sell their homes to relocate, upsize, or downsize. Investors, on the other hand, frequently buy and sell homes within a year for profit, which is considered taxable income.

Understanding taxes on a home sale can be complex for most people, as the IRS treats your home as a capital asset subject to capital gains tax. This means you may owe taxes on any profit from the sale if your home’s value has increased. However, there are potential capital gains exemptions available, making the five-year rule beneficial for homeowners who adhere to it.

The IRS offers a capital gains tax exclusion, but it depends on the duration of homeownership and primary residence, your filing status, and the amount of the profits you earned from the sale.

You must have lived in the home as a principal residence for any two of the five years before selling. If that condition is satisfied, up to $250,000 of profit is typically considered tax-free if you’re a single filer, or up to $500,000 if you are married and filing jointly.

Profits exceeding these thresholds generally must be reported as a capital gain and are subject to taxation. For personalized advice on your specific situation, consult with a tax professional.

In a seller’s market, where there are fewer homes available for sale, increased demand can drive sale prices above the list price, potentially resulting in larger profits for homeowners. This is why being knowledgeable about tax implications is more important than ever when navigating this type of market.

The real estate market is gradually shifting as housing inventory increases across many regions. While some areas remain competitive, others have moved from strong seller’s markets to more balanced conditions. In many places, what was once a balanced market is now tilting in favor of buyers, giving them more negotiating power and options.

However, market conditions still vary depending on location. Overall, the landscape is becoming more favorable for buyers in many parts of the country.

Testing the 5-year rule: How much does it cost to sell my home?

If you’ve purchased a home within the past five years, you may remember the costs associated with purchasing it, from inspection fees to closing costs. These costs can add up, and will also factor into whether it’s worth it to resell within five years since most people who sell their home often need to purchase a new one to live in.

To make money on your home sale, it needs to have appreciated in value more than the sum of all the selling fees you will face when moving.

Common costs associated with selling your home include:

• Staging fees and costs to prep the house for showing (varies)
• Realtor commissions for the sale (3% to 6% is standard)
• Inspection and repair fees (varies)
• Closing fees to sell, which include title fees, transfer taxes, escrow fees, recording fees, and prorated property taxes (1% to 3% of the sale price)
• A possible second set of closing costs if buying a new home
• Seller concessions (2% to 6%)
• Overlap costs (1% to 2%)
• Moving and relocation costs (varies)
• Mortgage payoff (varies)

One of the things that homeowners need to think about is what your strategy will be on how you’re going to get to the next house. Some people are upsizing, some people are relocating, some people are downsizing. They really need to get with a professional [to] put together a plan […] a strategy on how you’re going to make that next move.

Beating the 5-year rule: Get experts involved

“One of the things that homeowners need to think about is what your strategy will be on how you’re going to get to the next house,” Studebaker says.

“Some people are upsizing, some people are relocating, some people are downsizing. They really need to get with a professional [to] put together a plan […] a strategy on how you’re going to make that next move.”

Consulting your CPA or tax professional is crucial when considering selling your home within five years of purchase. A tax professional familiar with your financial circumstances can provide invaluable insights into whether selling would be advantageous or lead to additional expenses.

It’s important to think about how long you want to live in a house before you make a purchase because there are many benefits to following the five-year rule. Losing money on a home purchase is never the goal, so make sure it’s the right choice before signing on the dotted line.

Find a Top Agent to Sell Your Home for More

Tell us a little about your home and selling needs and we’ll provide recommendations for up to three top real estate agents in your area.

Find Agent

Partner with an experienced agent to truly evaluate the 5-year rule

When it’s time to buy your next home, use HomeLight’s Agent Match tool to find and partner with a top agent. No matter how long you have lived in your home, our data shows that the top 5% of real estate agents across the US sell homes for as much as 10% more than the average agent.

If you are looking to sell your home and relocate, ask yourself where you want to be five or 10 years from now. Ultimately, the five-year rule is a good guide for the average homeowner to help get the most out of where you live now and will give you the best return when the time comes to sell and move on to your next home.

Header Image Source: (Emily Barrington/ Unsplash)