Capital gains on a sale with no profit?

Question

Hi everyone,

We are considering a sale of a home we've owned less than 1 year.

Our question is about gains tax on a SFH that sells at or around (within $10K after sales commissions/closing) purchase price.

Does anyone know:

a. How capital gains tax in 2025 applies to a sale like this?We were considering a 1031 but may not do that if a sale results in a same-same $ gain as the purchase.Thank you.T

Dave Foster · Answer

Hi @Tanya Maslach, Thanks for reaching out privately as well. Given the fact that you haven't owned the property very long, you're not going to have to worry about depreciation. You will be taxed as short-term capital gains, which is your regular tax bracket plus whatever your state wants.
Like @Ryan Spath said, there's no statutory holding period to do a 1031 exchange, but longer is always better. It is not that your chance of an audit is increased. 1031s are not an audit trigger. But if you're audited, a 1031 is always looked at, and you want to have a reason to demonstrate your intent to hold the property and why that intent changed.
Your tax could be as little a $ 2- 3 K. Or as much as $ 4- 5 K. If you have a target and want to reinvest, that might be worth a 1031 (costing $950). But it's also not going to kill you to take the money, pay the tax, and keep it free for any other use. Remember - no one ever went broke paying tax on profit - It just feels like it.

Ryan Spath · Answer

@Tanya Maslach

1. Short-Term vs. Long-Term Capital Gains

• Short-Term Gain (owned less than 1 year): Treated as ordinary income, taxed at your regular income tax rate (10%–37%).
• Long-Term Gain (owned more than 1 year): Qualifies for preferential tax treatment—taxed at 0%, 15%, or 20%, depending on your taxable income and filing status.

Because you've owned the property for less than a year, any profit will be taxed as ordinary income—not at the lower long-term capital gains rate.

2. 1031 Exchange Holding Periods

It’s a common belief—and good practice—that you need to own a property for at least a year to qualify for a 1031 exchange. While the IRS doesn’t specify a minimum holding period, doing a 1031 exchange on a property held for less than a year increases your risk of audit.

The IRS may view the sale as a flip or resale for profit, rather than a true investment property, and could challenge the exchange.

I always recommend checking with a qualified intermediary before moving forward with any 1031-related decisions. Here in Boise, Pioneer Title is a trusted local option that handles these transactions and can guide you through the process.

—

Let me know if you’d like help estimating potential taxes or connecting with a 1031 intermediary!

Aaron Zimmerman · Answer

Was this a primary residence or rental property? If it's a primary residence, you're not going to have a significant tax burden. There may be some items you're missing from your original closing statement or improvements you've made.

If it's a rental property, you may be able to use passive losses.

all this to say, perhaps 1031 isn't the best path forward and doing a 1031 to save at most $4k in taxes probably isn't worth it . I'd speak with a cpa further to walk you through.

Tanya Maslach · Answer

You are my fav Mr Foster. ;-) Just sayin'. Thank you.

Tanya Maslach · Answer

Thank you Ryan. Great info. We do have a trusted QI so we'll hit him with a call to check with him on that. Appreciate it!

Basit Siddiqi · Answer

If there is no profit, there is no point in doing a 1031 exchange.

Aaron Zimmerman · Answer

@Tanya Maslach got it. Perhaps there's some missed deductions there or passive losses that can be unlocked.

I am a RE CPA

Tanya Maslach · Answer

@Aaron Zimmerman Thank you for this guidance. It IS a rental property -- and we are not familiar with the depreciation tax at all. Are you a RE CPA?

Ashish Acharya · Answer

@Tanya Maslach You're right to pause and consider the tax consequences before moving forward. Even if you sell the property at or near the original purchase price, here’s what to understand from a capital gains and tax perspective:

1. No Net Gain, No Capital Gains Tax (Generally) If you’re selling for roughly what you bought the property for, after commissions, closing costs, and allowable adjustments, then there’s likely no capital gain, and no federal capital gains tax would apply. The IRS only taxes you on the amount that exceeds your adjusted basis in the property.

2. Adjusted Basis May Include Improvements and Selling Costs Your adjusted basis is not just your original purchase price, it includes:

• Major capital improvements (e.g., roof, HVAC, not repairs)
• Certain acquisition costs
• Less any depreciation you claimed (or were eligible to claim) if the property was rented

If the property was a rental, even without gain, you may still owe depreciation recapture tax, which is taxed at 25% on the total depreciation taken.

3. Holding Less Than One Year = Short-Term Capital Gains If you do have a gain and the holding period is less than 12 months, the gain is treated as short-term capital gain, taxed at your ordinary income rate (up to 37% depending on your income).

4. Primary Residence? Section 121 Might Help If this was your primary residence and you lived there for at least 2 of the past 5 years, you may be able to exclude up to $250K (single) or $500K (married filing jointly) of gain under IRC §121. But based on your timeline (“owned less than 1 year”), this likely doesn’t apply yet.

5. 1031 Exchange Not Needed Without a Gain A 1031 exchange is a great deferral tool when you have a capital gain, but it’s not helpful if you’re breaking even. Since 1031 exchanges also add closing complexity and strict timelines, you can likely skip it unless your tax preparer identifies taxable depreciation recapture.

Next Steps

• Confirm whether depreciation was claimed (or should’ve been).
• Calculate your adjusted basis carefully, including improvements.
• Consult a real estate-focused CPA.
• Let me know if you’d like our downloadable Capital Gains Tax Strategy Guide, it includes checklists and timelines to help plan smart moves around selling, 1031s, or converting to rentals.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Capital gains on a sale with no profit?

Capital gains on a sale with no profit?

Most Popular Reply

11 Replies