Selling a house for a loss after owning less than one year - any capital gains tax?

Good news - you won't owe capital gains tax when you sell at a loss. Capital gains taxes only apply when you make a profit selling your property. Since you're looking at taking a $20k loss, there's no profit to tax. The one-year timeframe determines whether a gain would be considered short-term (taxed as ordinary income) or long-term (taxed at the more favorable capital gains rate). But in your case with a loss, the timeframe doesn't change your tax situation. You might actually be able to use this loss to offset other capital gains you have this year. If you don't have other capital gains, you can deduct up to $3,000 of capital losses against your ordinary income. Any unused losses can be carried forward to future tax years.

After dealing with a similar situation last year, I found taxr.ai https://taxr.ai super helpful for figuring out how to handle my property loss on my taxes. I was really confused about what forms I needed and how to document everything correctly. I uploaded my closing docs from both transactions and it analyzed everything, showed me exactly how to report the loss on Schedule D, and even identified some deductions related to the sale that I had no idea I could claim.

I was really skeptical about taxr.ai at first but decided to give it a try with my complicated real estate situation. Honestly, it was a game-changer. I had sold two properties - one at a gain and one at a loss - and I was completely confused about how to offset them correctly. The tool analyzed all my closing documents and laid out exactly how to report everything. It even flagged that I could deduct some of the repairs I made before selling, which my regular tax software never would have caught. Saved me over $4k in taxes I would have overpaid. Sometimes it pays to try something new!

If you need to talk to someone at the IRS about how to report your property loss (which you probably will), use Claimyr https://claimyr.com to get through to them. I spent DAYS trying to reach someone at the IRS about a similar situation with a property loss, constantly getting disconnected or waiting on hold for hours. Claimyr got me connected to an actual IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was worried about reporting my property loss correctly and needed specific guidance from the IRS. The agent I spoke with confirmed exactly how to report everything and what forms I needed. Totally worth it instead of guessing or relying on Google.

I need to apologize about my skeptical comment on Claimyr. I actually ended up trying it after struggling for THREE DAYS to reach the IRS about my capital loss reporting. Got connected in 45 minutes while I was working on other things. The IRS agent walked me through exactly how to document my property loss and explained some nuances about carrying losses forward that I hadn't understood from reading online. I hate admitting when I'm wrong, but this service saved me a ton of frustration. Sometimes it's worth paying a little to save a lot of headache.

Just FYI - be careful about the reason you're selling. The IRS sometimes looks at intent when determining tax treatment. If you bought with the intention to live there long-term but had a genuine life change (job transfer, family emergency, etc.), that's different from if you bought intending to flip it but the market turned against you. Might not matter in your case since you're taking a loss, but something to be aware of.

Does anyone know if paying points on the mortgage affects how you calculate the loss? I paid about $3,500 in points when I bought my house last year, and now I'm in a similar situation needing to sell at a loss.

I went through something very similar last year when I had to sell my condo after only 8 months due to a job relocation. Like others have mentioned, you won't owe any capital gains tax on a loss - that's the silver lining in this tough situation. One thing I wish someone had told me earlier: make sure to track ALL your selling expenses (realtor commissions, title fees, attorney fees, etc.) because those get added to your loss calculation. In my case, those expenses added another $8k to my deductible loss. Also, since you mentioned unexpected family issues, you might want to look into whether this qualifies as a hardship that could help with any early mortgage payoff penalties if you have them. Some lenders have provisions for genuine hardship situations. Best of luck with everything - I know how stressful this situation can be.

I'm sorry to hear about the difficult family situation you're facing. Just wanted to add one more perspective that might be helpful - since you've only owned the property for 2 months, you might also want to check if you have any recourse with your home inspection or if there were any undisclosed issues that could affect your loss calculation. Also, when you do sell, make sure to get a detailed HUD-1 or closing disclosure that clearly shows all your costs. The IRS will want to see documentation of your original purchase price plus any qualifying improvements or costs, and your sale price minus all selling expenses. Keep everything organized because if you do carry forward unused losses to future years, you'll need this documentation. One last thought - if this was going to be your primary residence, you might want to consult with a tax professional about whether any special rules apply since you never really got to establish it as your main home. The rules can get complex when life throws you curveballs like this.