Selling to a cash buyer can feel like a breath of fresh air when you’re staring at a leaky roof, a looming job transfer, or a foreclosure letter you’ve read too many times. No showings, no repairs, no endless renegotiations. But the IRS doesn’t care how easy your sale was, only what you earned from it. The tax rules are the same whether you sell to a neighbor, a conventional buyer, or a company with billboards that say we buy houses for cash. If you’re asking how much you’ll owe, you’re already doing View website better than the folks who wait until April to find out.
I’ve sat at closing tables with sellers who walked out relieved, only to call weeks later confused about capital gains, depreciation recapture, or whether their tax basis includes the new HVAC they installed right before they moved out. Let’s walk the terrain clearly, with a practical lens. The goal is to understand what the IRS considers income, where you have shelter from taxes, and how a fast sale might change your timing but not your bottom line.
Cash sale doesn’t change the tax rules, the numbers do
Whether you accept an offer from cash home buyers or list on the MLS, the calculation starts in the same place: your gain is your amount realized minus your adjusted basis. The amount realized is generally the contract price plus any debts the buyer pays off for you, reduced by your seller closing costs. Your adjusted basis is what you paid for the property plus certain acquisition and improvement costs, minus any depreciation you claimed, or should have claimed, while the home was a rental or a business asset.
I once worked with a seller who thought “we buy houses for cash” meant the sale was invisible to taxes. The check indeed cleared faster, but the 1099-S still showed up, and the gain didn’t disappear. What cash changes is speed, certainty, and sometimes price. It doesn’t change federal tax treatment.
Home sale gain exclusion: the Section 121 umbrella
For your primary residence, the home sale exclusion is the heavyweight rule. If you owned and used the property as your primary residence for at least two out of the five years before the sale, you can exclude up to 250,000 dollars of gain from federal income tax if you file single, or up to 500,000 dollars if you’re married filing jointly and meet the joint return tests. That exclusion covers capital gains only, not depreciation recapture.
The two-year clock need not be continuous. If you lived there for 18 months, rented it for a year, then moved back for another 6 months, you still meet the two-year use requirement. The five-year lookback is strict though. Move out for too long, and you can fall outside the window and lose the full exclusion. I’ve seen sellers miss by a month and end up paying taxes they could have avoided with a different closing date.
Special cases exist. If you sold because of a change in employment, health, or certain unforeseen circumstances, a partial exclusion is sometimes available. That partial shield is proportional to how much of the two years you completed. It won’t zero out a big gain, but it can soften the blow.
What counts in your adjusted basis, and what doesn’t
Your basis is the bedrock of your tax calculation. It’s your original purchase price plus closing costs that are part of acquiring the property, such as title insurance for the owner, legal fees, and transfer taxes when the buyer doesn’t pay them. Add to that the cost of capital improvements that add value, prolong the home’s life, or adapt it to new uses. New roof, foundation repair, room addition, major plumbing or electrical upgrades, energy-efficient windows that replace old ones, a kitchen remodel that isn’t just cosmetic, these build your basis.
Repairs and maintenance do not. Patching a hole, fixing a leaky faucet, or repainting to freshen before listing doesn’t go into basis. Neither do homeowners insurance premiums or utility bills.
If you ever used the home as a rental or claimed a home office deduction using actual expenses with depreciation, your basis is reduced by the depreciation allowed or allowable. Even if you forgot to claim depreciation, the IRS treats it as if you did. When you sell, that depreciation portion is taxed as unrecaptured Section 1250 gain, usually at a maximum federal rate of 25 percent. That line item surprises more sellers than any other.
Seller costs and how they help
Closing costs on the sale side reduce your amount realized, which reduces your gain. Commissions, escrow fees, title charges, transfer taxes where applicable, attorney fees, and sometimes buyer credits or repair allowances given at closing all play here. When you work with we buy houses for cash companies, the fee structure is often different. Many promise no commissions, and in exchange they offer a lower price. From a tax perspective, it usually comes out similar. A lower price without a commission versus a higher price with a commission both land in the same ballpark for your gain calculation. You still subtract whatever you actually pay.
If a buyer pays off your mortgage as part of closing, that payoff is part of the amount realized, but don’t panic. Your mortgage payoff is not a tax deduction; it simply helps explain where the sale proceeds went. The gain calculation doesn’t care how much you owed, only the difference between what you sold for (net of selling costs) and your adjusted basis.
Capital gains rates and the calendar
If you owned the property for more than a year, long-term capital gains rates apply. Most sellers land at 0, 15, or 20 percent federally, depending on taxable income. Short-term sales, under a year of ownership, are taxed at ordinary income rates, which can be higher. States layer on their own income tax rules. Some, like Texas or Florida, have no state income tax. Others, like California or New York, tax capital gains at regular state income rates.
This is where a quick sale can matter. If you’re right on the cusp of a long-term holding period, pushing closing across that one-year mark changes your rate. Likewise, spreading income across tax years can affect Medicare surtaxes and phaseouts that creep in above certain thresholds.
The 3.8 percent net investment income tax
If your modified adjusted gross income exceeds certain thresholds, currently 200,000 dollars for single filers and 250,000 dollars for married filing jointly, part or all of your capital gains may be subject to the net investment income tax. This is on top of your capital gains rate. Primary residence exclusion helps here, because excluded gain isn’t subject to the surtax. For investors selling a rental to a cash buyer, the surtax can be a factor if your income is already high.
Selling a rental or an inherited home for cash
When the property isn’t your primary residence, you don’t get the Section 121 exclusion. Your gain is fully taxable, subject to long-term or short-term rates. If it was a rental, you likely claimed depreciation. Expect depreciation recapture at up to 25 percent on that portion. It’s not a separate tax form, it’s a different tax treatment of part of the gain.
Inherited homes are different. Heirs usually receive a basis stepped up to the property’s fair market value at the date of death, or an alternate valuation date if used. Sell soon after inheriting, and there may be little to no gain. That’s often where cash home buyers come in, especially for estates with distant heirs who don’t want to rehab or list. The key is documenting the stepped-up value. A professional appraisal around the date of death is worth its fee.
Gifts are the opposite. If your parents gifted you the house, you take their basis, not a stepped-up value. Many folks assume a gift resets taxes. It doesn’t.
When a quick sale can save you money, and when it can cost you
There’s a real-world trade-off between a fast cash price and a potentially higher list price that might take months and repairs to achieve. Taxes should be one input in that decision, not the sole driver.
A few examples I’ve seen play out:
- A seller with a vacant house facing vandalism risks and a 1,200 dollar monthly burn rate in mortgage, utilities, and insurance took a 15,000 dollar lower cash offer. The certainty reduced carrying costs and stress. The lower gross price slightly reduced the capital gain and the net investment income tax, offsetting part of the haircut. An owner who moved out 22 months ago was about to miss the two-out-of-five-year exclusion window. A fast contract with a we buy houses for cash outfit closed within three weeks, preserving a 250,000 dollar exclusion. The convenience premium was small compared to the tax savings. A long-time landlord received a clean cash offer and elected a 1031 exchange instead. The cash buyer didn’t slow the process; the exchange accommodator and strict timelines drove the schedule. More on that below.
What about 1031 exchanges with a cash buyer?
If you’re selling investment property, not your primary residence, a like-kind exchange under Section 1031 can defer taxes by rolling your equity into another investment property. The fact that the buyer pays cash doesn’t disqualify you. Your side of the transaction is what matters. You must use a qualified intermediary, identify replacement property within 45 days, and close on the replacement within 180 days. Any cash you take out at closing, called boot, is taxable to the extent of gain.
The speed of a cash closing can help or hurt. It can get you into the 45-day clock quickly, which is fine if you’ve pre-shopped. It can also blindside unprepared sellers. Once you close and take constructive receipt of the funds, the exchange door closes. If a 1031 is on your radar, get the accommodator in place before you sign final paperwork.
State transfer taxes, local quirks, and the 1099-S
Most closings generate a Form 1099-S that reports gross proceeds to the IRS. In some cases, if you certify that the gain is fully excludable under the primary home exclusion, the closing agent may not issue a 1099-S, but practices vary by state and company. Don’t rely on that. If you receive one, report the sale on your return even if no tax is due. A simple worksheet on Form 8949 and Schedule D ties it off cleanly.
States and municipalities have their own transfer taxes and filing quirks. Some cities require pre-sale inspections or point-of-sale repairs. Cash home buyers often absorb those wrinkles as part of their business model, then reflect them in the offer price. None of these charges are federal income taxes, but they do affect your net and sometimes your basis or amount realized calculations.
Paperwork you’ll want to keep
The cleanest tax returns come from good files. Years after a sale, it’s hard to reconstruct what a roof cost or whether the HVAC was an improvement or a repair. Keep a sale packet with purchase documents, HUD-1 or closing disclosure statements from both purchase and sale, receipts for major improvements, and depreciation schedules if you ever rented the property.
If you work with a we buy houses company that promises a simple, quick close, ask for a full settlement statement anyway. You want to see every line: purchase price, fee allocations, credits, payoffs. It’s the map you’ll use at tax time.
Common mistakes that inflate the tax bill
Two patterns crop up again and again. First, folks forget about improvements that increase basis. That 18,500 dollar sewer line replacement, the window package for 9,000 dollars, or the 12,000 dollar roof, all add up. Without them, your gain looks larger than it is.
Second, owners who converted a home to a rental ignore depreciation they were required to take. On sale, the IRS assumes you took it, and they recapture it regardless. If you never claimed it, talk to a tax pro about filing for missed depreciation. There is a catch-up method that can bring you current and prevent ongoing mismatch.
A less frequent but costly mistake is closing just after the two-year mark for the home exclusion, then discovering that months of extra tax could have been solved by moving up the closing date, even if that meant accepting a slightly lower offer.
How cash buyers structure deals, and what that means to your taxes
Companies that advertise sell my house fast or we buy houses for cash usually aim for predictable closings. They offer as-is terms, quick inspections, and in some markets they cover many closing costs. They price for profit, so expect a discount compared to a fully marketed, updated, owner-occupied listing. For inherited properties in disrepair, pre-foreclosures, or homes with title complications, that discount often compares favorably to months of carrying costs and headaches.
From a federal tax standpoint, the structure rarely changes your taxable gain. If the buyer covers your title and escrow fees, the gross price may be a touch lower. If they charge a service fee instead of a commission, it reduces your amount realized similarly. If they let you leave behind debris and skip repairs, you didn’t incur those costs, so they don’t show up anywhere in your return.
One structural item can matter: rent-backs or post-possession agreements. If you sell and then rent the home back for a period, the rental income is taxable. It won’t affect your gain directly, but it does show up in your year’s income. Keep the paperwork clean. Short, clearly priced rent-backs avoid confusion.
The gray areas: partial rental use, house hacking, and home offices
Real life doesn’t always fit tidy categories. If you rented out a room or a basement ADU while you lived in the house, or if you claimed a home office with depreciation, expect some allocation.
When part of the home was used for business or rental, the home sale exclusion still generally applies to the personal-use portion. The business or rental area is taxable, and any depreciation on that portion is recaptured. If the rented area is within the same dwelling unit and was used for business after 2008, the rules are often kinder, sometimes allowing full exclusion on the entire property except for depreciation recapture. The details hinge on how you allocated space and whether that area was a separate dwelling unit with its own kitchen and entrance.
For a home office, if you used the simplified square-foot method, there’s no depreciation to recapture. If you used actual expenses with depreciation, plan for recapture on that part. Good records make this manageable.
Timing strategies when speed matters
A cash sale can close in as little as a week in some states, though two to four weeks is more common. If you’re juggling tax considerations, use speed to your advantage.
If you’re near a long-term holding period, schedule closing just after the one-year mark. If you’re brushing up against the two-out-of-five-year window for your home exclusion, close before it expires. If a big bonus or stock vesting pushes your income into net investment income tax territory this year, and you have flexibility, consider closing in early January instead of late December. Shifting the sale by a few weeks can change your tax bracket mix.
If you’re executing a 1031 exchange, lock in a pipeline of target properties early. Cash buyers won’t slow their clock to suit your identification period. You need your ducks in a row.
What if you sell at a loss?
Primary residences sold at a loss do not create a deductible loss for federal taxes. You can’t claim the difference. That stings when you sell quickly in a soft market. The silver lining is that you won’t owe capital gains tax either. For investment property, a loss is generally deductible and can offset other capital gains, with any excess carrying forward subject to familiar limits. Again, documentation matters, especially for basis and improvements.
Practical example, numbers that feel real
Imagine you bought a house for 300,000 dollars. Closing costs at purchase added 5,000 dollars to basis. Over the years, you installed a 12,000 dollar roof and 8,000 dollars of new windows. Your adjusted basis before any depreciation is 325,000 dollars.
You move out and rent the home for two years, claiming 10,000 dollars of total depreciation. Basis drops to 315,000 dollars. You then sell to a we buy houses for cash company for 460,000 dollars. They cover your escrow and title, and you pay no commission. Your net amount realized is roughly 460,000 dollars minus a 1,000 dollar recording fee and a 1,500 dollar attorney fee, so call it 457,500 dollars.
Your total gain is 457,500 minus 315,000, or 142,500 dollars. You lived in the home for at least two of the five years before the sale, so the Section 121 exclusion applies to the capital gains portion. But you must still recapture the 10,000 dollars of depreciation at up to a 25 percent rate. The remaining 132,500 dollars is eligible for exclusion, which likely wipes it out if you haven’t used the exclusion in the past two years. Your federal tax bill may be around 2,500 dollars for the depreciation recapture, plus any state tax on that amount. A quick sale didn’t change the math, it just accelerated your timeline and spared you repair costs.
Change one variable: if you sold 26 months after moving out and did not move back, your use in the last five years might drop below two years, depending on exact dates. You could lose the exclusion and pay tax on the full 142,500 dollars, a very different outcome. Dates matter.
How to talk to cash buyers about taxes without slowing the deal
Ask for a detailed settlement statement early. Clarify which party pays transfer taxes and municipal fees. If you’re considering a 1031 exchange, notify them before signing and copy your qualified intermediary. If your sale hinges on crossing a calendar or residency threshold, be upfront about your preferred closing date. Reputable cash home buyers will accommodate reasonable timing, especially if it secures the deal.
If the buyer proposes creative terms, like a holdback escrow for repairs after closing or a seller financing element, loop in your tax professional. Most cash companies keep it simple. If one doesn’t, understand why.
When to bring in a professional
Most straightforward primary home sales with clearly under 250,000 or 500,000 dollars of gain are easy to report. Once you add partial rental periods, depreciation, 1031 exchanges, or high-income surtaxes, the calculus warrants professional eyes. A one-hour consult to confirm your basis and timing can save many times its cost.
If your property has title defects, an unpermitted addition, or a second unit you rented, get the facts down on paper. Good cash buyers will still buy, but knowing the reality helps you negotiate and plan your taxes intelligently.
A measured way to decide: speed, certainty, and tax impact
Selling to a cash buyer is a tool. It removes friction, not your tax obligations. If you’re balancing a lower price against carrying costs or risk, lay out the numbers plainly. Estimate net proceeds under a traditional listing and a cash offer, then run your likely tax under each scenario. If the home exclusion erases your gain either way, focus on net cash and time. If you’re near a tax threshold or juggling a 1031, let dates and structure steer your choice.
The billboard promises simplicity. Your tax return wants precision. With clear records, a sensible timeline, and a bit of planning, you can accept a fast, certain offer without leaving money on the table at tax time. And if you’re the one searching sell my house fast after a rough month, remember this: the IRS only taxes your gain, not your stress. Keep your paperwork, mind your dates, and let the numbers guide you.