Selling a house in Texas involves many steps and things to consider especially taxes. In general, taxes seem confusing, and if you didn’t already know, Texas does tax capital gains and property. But the good news is, there is no state income tax in Texas, making it an attractive place to sell your home. Besides that, it is important to remember that it is an obligation to pay federal taxes under some situations. So, what are the possible taxes you should be aware of when selling your home in Texas? Let’s learn more about taxes on the sale of your home in Texas.
What Are The Taxes On Selling A Home In Texas?
Do You Pay Taxes On A Home Sale?
If you sell your house and make a profit, yes, there is a home sale profit tax. Also known as capital gains, the gain is the difference between a higher selling price and a lower purchase price. So basically, it is the profit made when you sell your house where the sale price exceeds the purchase price. Paying capital gains applies to homes, property, and possessions that you have had for over a year that earn you a profit when you sell them. The reason being when you sell something for a profit, it is treated as a commercial transaction when it comes to taxation.
There are two types of Capital Gains:
- Short-Term Capital Gains- will apply to your home sale if you have owned it for less than a year. You would only owe income taxes based on your regular tax bracket.
- Long-Term Capital Gains- apply if you have owned the property for over a year. Rates for long-term capital gains is a lot lower, even nothing, depending on seller income, filing status, and exemptions.
How To Be Exempt From Capital Gains Tax
There is a possibility when selling your Texas home that you won’t have to pay capital gains taxes thanks to exemptions built into the tax code. How do you know if you qualify? If you meet specific criteria, you are allowed to make $250,000 in profits when filing individually and up to $500,000 when filing jointly or as head of the household.
The specific criteria consist of:
- The house must be your primary residence
- You must have been the owner of the house for at least two years
- Over the last five years, you must have lived in the house for more than two years
- You haven’t claimed this exemption within the previous two years on another property
So, if you meet all the requirements, it is unlikely that you will have to pay capital gains taxes in Texas if the sale of your house is under those amounts. However, if you make any profits over those amounts, you will still have to pay capital gains. Also, if you don’t meet the specific criteria you will have to pay capital gain taxes.
How Much Are Capital Gains In Texas?
If you don’t meet the criteria for an exemption, you will have to pay capital gains on the sale of your home. What you pay is different, though, depending on your situation and income level. For help check out the IRS’s latest requirements.
On the bright side, you could still avoid paying capital gains if your income level is less than $39,375 individually or $78,750 for those married filing jointly or filing as head of household. Meaning you are not required to pay capital gains on your home sale if you fall in that income level.
Unfortunately, if you make between $39,376 and $434,550 individually or between $78,751 and 488,850 for those married filing jointly or as head of household, you are obligated to pay a 15 percent capital gains tax. For reference, if you meet the criteria and sell your house for $200,000, you will have to pay capital gains of $30,000.
Also, keep in mind that in the state of Texas the most you can be taxed is 20 percent on your home sale. This percentage applies if you make more than $434,550 for single filers or $488,850 for those filing jointly. For instance, if you were to sell your house for $200,000, you would owe $40,000 in capital gains taxes.
On a good note, since you’re selling your property in Texas, you won’t have to pay state capital gains on top of what you’re paying the federal government.
What About Property Taxes?
Besides paying taxes on the sale of the home, while you still own your Texas home, you’re responsible for paying property taxes. According to Tax-Rates, Texas has one of the highest average property tax rates in the country, coming in at 1.81%. So annual taxes on a $205,000 home would cost you $3,703. So, be aware that you are responsible for paying the taxes until your house sells, even if the closing gets delayed. Though tax laws may change, if you are still on the fence about whether or not to sell your house right now, remember the longer you wait, the more property taxes you will have to pay.
How Can I Avoid Taxes Altogether?
Now that you understand more about home sales and taxes in Texas, you may not want to go through the hassle of selling. But don’t be discouraged, there is another solution to dealing with taxes on the sale of your home by selling directly to a cash home buyer like Four 19 Properties. They are a husband and wife duo in the Fort Worth Texas area and purchase properties as-is.
The advantage of selling a home to a real estate investor is that they buy houses in any condition or situation, even if you are already dealing with tax issues. They review the condition and details of your home and conveniently will meet you at the property. No need to worry about repairs, they will deal with all the problems, so you don’t have to. After assessing your property, they will make you a cash offer based on your home’s value. And the best part, there are no fees or taxes you will need to deal with beyond that offer. They will even pay the closing costs!
Once you accept, you set the closing date, and all that’s left is signing the contract and getting your cash—no extra costs to worry about or dealing with taxes. Selling to Four 19 Properties is the best way to start fresh in a new home.
Have you verified with a CPA or other Tax Professional when you make the statement that “In general, taxes seem confusing, and if you didn’t already know, Texas does tax capital gains and property.”. This statement is false. Texas does not have an Income Tax and does not have a Capital Gains Tax. You do make this statement “On a good note, since you’re selling your property in Texas, you won’t have to pay state capital gains on top of what you’re paying the federal government.” almost as a disclosure at the end of the very mislabeled section of “How Much Are Capital Gains In Texas?”. Please be a professional and if you are holding information out to the public that could be confused as tax advice or guidance, ensure a tax professional and a proof reader have gone over your material before mass dissemination across the internet.
Appreciate you taking the time to read the blog. There is a tax on capital gains on property in Texas. I think what you are referring to is an exemption on capital gains which keeps you from paying taxes. You can be exempt from capital gains under certain circumstances. If you scroll down further into the blog you will see that info. Hopefully this helps.