Selling a house is one thing, and figuring out the taxes you owe after you sell is another. If you’re a Texas homeowner and considering selling your house, you’ll definitely want to see if capital gains taxes will impact how much you’ll walk away with. But unless you work in the tax world, talking about taxes may seem like a foreign language. On a brighter note, we buy houses in Texas and can help you sell your house quickly while potentially saving you money on both taxes and selling costs.
Below, we’re going to cover everything you need to know about capital gains taxes on real estate in Texas for 2026. We’ll also include smart strategies to reduce your taxes and go over ways to protect your assets.
The Good News: Does Texas Have a State Capital Gains Tax?
To get this out of the way and put your mind at ease: Texas doesn’t have a state capital gains tax. Who knows if this will change in the future, but as of December 2025, Texas is still one of the states without a state income tax. This also means you won’t pay state-level capital gains taxes when you sell your property. Historically, the state of Texas has favored low taxation, stemming all the way back to the state constitution, and continues to this day.
In comparison to other states like California or New York, where capital gains rates can reach over 13%, Texas property owners have a real leg up. But that doesn’t mean you’re entirely off the hook. You’ll still need to deal with the federal tax system, which treats real estate as a capital asset, so it’s subject to federal taxation.
Federal Capital Gains Rates: Short-Term vs. Long-Term
To clear things up so there is no confusion – Texas won’t tax your capital gains, but the federal government will. The rate at which you’ll be taxed is based on how long you’ve owned the property and your overall taxable income level. Figuring this out on the front end will help you to understand these tax laws and to plan better.
You’ll want to figure out which category you fall into because that will impact how much you’ll owe in taxes.
Short-term capital gains – If you’ve owned your property for one year or less, this applies to you. These realized gains (fancy way of saying actual profits) are taxed as ordinary income. The rates can range from 10% to 37% based on your tax bracket.
Long-term capital gains – If you’ve owned your property for more than one year, this applies to you. Fortunately, the federal long-term capital gains tax rates are generally more favorable; here is how they are broken down:
- 0% for single filers earning up to $47,025 (or $94,050 for married filing jointly)
- 15% for middle-income earners
- 20% for high-income earners (single filers over $518,900 or married filing jointly over $583,750)
Smart tax planning can really help you time the sale just right and qualify for long-term rates, really reduce your tax liability.
The “Section 121” Exclusion: Paying $0 on Your Primary Home
Homeowners can use something called the primary residence exclusion or primary residence exemption. This exclusion/exemption allows you to factor out up to $250,000 in capital gains if you’re single, or $500,000 if you’re married filing jointly, when selling your primary residence.
To be able to use this, you have to have lived in the home for at least two of the past five years. And you can only use this exclusion once every two years. If you do qualify, it’s a really helpful thing for homeownership tax planning.
Reducing Your Tax Bill: How to Calculate “Adjusted Cost Basis”
Adjusted basis is another word that goes hand in hand with capital gains taxes. Your capital gains are based on the difference between your home sale price and your adjusted basis. Figuring out how to calculate this is key to accurate tax planning.
Your adjusted basis includes:
- Original purchase price
- Closing costs from when you bought the home (including loan origination fees and title insurance)
- Capital improvements (not repairs)
- Selling expenses like realtor fees, agent commissions, and closing fees
How this would look: say you bought a house for $300,000, spent $20,000 on closing costs, including a mortgage origination fee and title insurance policy, and invested $50,000 in a kitchen renovation. Your adjusted basis would be $370,000. If you sell for $450,000, your taxable gain is only $80,000, not $150,000.
You also should be able to deduct other expenses like realtor fees (typically 6% of the home sale price), title insurance rates, recording fees, attorney fees, transfer fees, and other settlement charges from your gain.
Special Rules for Inherited Homes (The “Step-Up” in Basis)
Curious what this would look like if you inherited a property? There are special rules for inherited homes, and you get what’s called a step-up basis. This means your cost basis becomes the fair market value of the property when you inherited it, not what the previous owner paid. This is a big advantage over other assets like stocks or bonds that are held in regular accounts.
This can be huge for tax savings and estate tax planning. Here is a scenario to show you how this would work. Saw your parents bought a house in 1980 for $100,000, and now it’s worth $400,000. When you inherit it, your basis becomes $400,000. If you sell it down the road, for $420,000, you only pay taxes on a $20,000 gain instead of $320,000.
Inherited real estate really benefits from this step-up in basis, unlike assets held in an IRA or 401ks.
Investor Strategies: 1031 Exchanges & Installment Sales
A way to sell rental property without paying taxes is to use a section 1031 exchange. You will be able to roll the proceeds into a like-kind property, as long as you do it in the timeframe set by the Internal Revenue Service.
You can also spread the gain over multiple years if you do an installment sale. The buyer would make payments over time, which would keep you in a lower tax bracket.
In these situations, it’s always recommended to plan carefully and to seek professional guidance when it comes to reducing your taxes on business assets and investment properties. They would also be able to talk to you about deferred sales trusts that you can reinvest in.
These ongoing costs, like property taxes, are a big deal for investors because they impact investment returns and profits.
Real-Life Example: Calculating Taxes on a $100,000 Gain
To explain this and make it easier to follow, here is an example of how this would play out.
Let’s say you own a rental property in Houston that you bought for $200,000 in 2020. You end up selling it in 2026 for $350,000, and spent $20,000 in selling expenses and $10,000 in improvements over the years.
Your calculation:
- Sale price: $350,000
- Less: Adjusted cost basis ($200,000 + $10,000 improvements) = $210,000
- Less: Selling expenses = $20,000
- Taxable gain: $120,000
We’ll say you’re in the 15% long-term capital gains bracket, so you’d owe $18,000 in federal taxes. Remember, there’s no state income tax on house sales in Texas. And if you had unrealized gains in other assets like stocks, those wouldn’t affect this calculation until she actually sells them.
If you’re still uncertain how to calculate your capital gains taxes, you may be able to use a tax calculator. But for more confident information, talking to a business advisor about tax planning would help you reduce your overall liabilities.
Does Selling to a Cash Buyer Like Four 19 Properties Affect My Taxes?
Does your tax situation change if you sell to cash home buyers in Dallas or other Texas cities? No, it doesn’t work that way- your capital gains will remain the same regardless of who you sell to, whether that be to a traditional buyer, investor, or cash buyer.
However, there are some perks to consider. When you sell your house fast in Fort Worth or other Texas markets directly to a cash buyer, you typically save on:
- Realtor commissions and listing agent fees
- Closing costs, including title services, notary fees, and survey fees
- Carrying costs, including mortgage payments, property tax, and homeowners association fees, while the house sits on the market
- Potential repair costs and appraisal fees
- Private mortgage insurance and other mortgage-related expenses
Even if the sale price is slightly lower than market value, these savings can improve your net proceeds. But when it comes down to who pays home sale taxes in TX, you do. But they may be potentially less overall due to reduced selling expenses and a faster closing timeline.
Our home buying process can be really quick, even closing within 2 weeks if needed. Being able to close quickly means you’ll avoid ongoing carrying costs like mortgage balance payments, utilities, interest rate changes, and property taxes.
Frequently Asked Questions (Texas Tax Guide)
What is the Net Investment Income Tax (NIIT)? (For high earners)
High-income earners pay an extra 3.8% tax on investment profits and capital gains. This kicks in for single filers earning over $200,000 or married couples earning over $250,000. Your primary home sale usually avoids this tax, but rental properties don’t.
Can I deduct closing costs from my capital gains?
Yes, you can deduct closing costs from your capital gains. This includes title insurance, recording fees, loan origination fees, and other settlement charges. Make sure to keep receipts for all real estate transaction expenses – a closing costs calculator can help track everything during the home buying and selling process.
Do I have to pay taxes if I sell my house for a loss?
You won’t be able to deduct any losses on your primary home. But investment property losses can offset other capital gains or up to $3,000 of regular income per year. This is a bit different than business assets or stocks, where loss roles are more flexible.
Conclusion
Hopefully, all this information has cleared the air on capital gains taxes. Owning a home in Texas has its advantages, with no state capital gains tax revenue, and for many primary residence sales, the federal exclusions can eliminate taxes. Whether you’re selling through a traditional real estate agent or want to get a free cash offer from a direct buyer, knowing your tax implications helps you make the best decision for your family.
To make this a success, though, make sure to plan ahead, keep good records of your home’s cost basis and improvements. We’d highly recommend consulting with a tax professional when it comes to complex situations that involve investment properties, estate tax planning, or gift tax considerations.
Unlike other assets such as stocks, bonds, or business investments, real estate offers unique tax advantages through the homestead exemption and primary residence exclusions. These benefits make homeownership an attractive wealth-building strategy in Texas’s favorable tax environment.
Note: This content provides general information about tax planning and should not be considered legal or financial advice. Tax laws and local data may change, so consult with qualified professionals for your specific situation and property location.