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

You’ve got a house that’s been your primary residence and you’ve lived in it for fewer than five years. But now you need or want to move because your life circumstances have changed. When considering making this move, the two most common questions center on money: Will you make a profit on selling a house so soon after purchasing it? And will you have to pay taxes on any potential profit from selling the house?

The five-year rule, as it’s known in real estate, states that new homeowners generally should live in a home for at least five years before selling the property, otherwise they can be at more risk of losing money on their investment. But there’s more to consider than just years when determining if selling in in fewer than five years is a good move.

This principle happens to overlap with a tax rule that may affect homeowners who are considering selling their homes within five years of purchase. We’ll address the tax implications further down.

The five-year rule is not hard and fast — in fact, some real estate agents don’t even refer to it as such. But there are several factors to consider when selling your house within five years of purchasing it.

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

Allen Studebaker, a top real 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 make a 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 home 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?

Some common factors that increase a home’s value include:

Location
Supply and demand
Comparable properties nearby (known as real estate comps)
Size and usable space of your home
Age and condition of your home
Upgrades and updates
Health of the economy
Generational needs
Walkability score

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

A major factor in seeing if 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 December 2023, the average appreciation rate was 5.9%, while it was only 4.6% in December 2022.

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.