Texas Capital Gains Tax on Real Estate: How to Maximize Profit and Minimize Tax

If you're selling real estate in Texas, you've likely heard conflicting advice about capital gains taxes. Since Texas doesn’t collect income tax, many assume they’re off the hook for capital gains too. However, federal capital gains taxes still apply, and they can significantly impact your final payout.

This guide breaks down what you need to know, answers common questions, and shows how partnering with a CPA can help you keep more of your hard-earned equity. If you're unsure how the rules apply to your situation, the Hall Accounting Company team is here to help.

Does Texas Have a Capital Gains Tax on Real Estate?

No, Texas does not impose a state capital gains tax on real estate. That’s good news for homeowners and real estate investors alike. But don’t assume you’re totally off the hook—federal capital gains taxes still apply, and they can take a serious bite out of your profits if you’re not careful.

Capital gains tax comes into play when you sell a property for more than you paid for it. While Texas won’t tax that gain, the IRS most certainly will. So if you’ve recently sold or are planning to sell a home, rental property, or piece of land, it’s crucial to understand how federal taxes could affect your bottom line.

Whether you’re a homeowner cashing out after years of appreciation or an investor flipping properties, tax planning can save you thousands. Hall Accounting Co. can help you make sense of your unique situation and show you how to move forward with confidence as there are so many factors, such as entity structure, that impact taxes on the sale of your property.

Pro tip: Tax laws change—and so do your personal circumstances. Even if you’ve sold property before, it’s smart to get personalized advice for each transaction.

How Does the IRS Calculate Capital Gains on Real Estate?

When you sell real estate for more than what you originally paid, the IRS considers that profit a capital gain—and they want their share.

Here’s the basic formula the IRS uses:

Selling Price – Adjusted Basis = Capital Gain

Let’s break that down:

• Selling Price: This is the final sale amount of the property.
  

• Adjusted Basis: This includes the original purchase price plus closing costs and qualifying improvements (like a new roof or remodeled kitchen) minus any depreciation claimed—especially if the property was used as a rental.
  
  

So, if you bought your property for $250,000, put $30,000 into upgrades, and sold it for $400,000, you don’t automatically owe tax on the full $150,000 profit. The IRS looks at your net gain after adjustments.

Visual: Capital Gains Calculation Table

Create a simple example calculation, like this:

Depreciation plays a big role if your property was used as a rental or investment. That portion may be recaptured and taxed differently—even if you qualify for exclusions on the rest.

This is where it gets tricky and why having a CPA on your side is so valuable. Our team can help you assemble your records, calculate your true basis, and identify every opportunity to reduce your capital gains exposure.

Do I Still Owe Taxes If I Sell My Home in Texas?

Yes—but only to the federal government. Texas is one of the eight states that doesn’t collect income tax, so you won’t owe the state anything when you sell your home. But federal capital gains tax still applies if you sell real estate for more than you paid for it.

If the property is your primary residence, you might be eligible for a significant exclusion (more on that coming up). But if it’s a second home, rental property, inherited estate, or investment, different rules—and often a higher tax burden—apply.

These situations come with nuances that can affect your final tax bill. For example:

• Depreciation recapture on rental properties
  

• Short-term vs. long-term holding periods
  

• Whether a 1031 exchange is an option

That’s why it’s smart to talk to a CPA before you sell. At Hall Accounting Co., we tailor tax strategies for all types of sellers—whether you're a first-time homeowner, a snowbird with a second home, or a full-time investor with a growing portfolio. We’ll help you understand what to expect and how to keep more of what you’ve earned.

Common Property Types and Their Tax Treatments

Not all properties are taxed the same way when sold. The type of real estate you’re selling—whether it’s your home, a rental, or something inherited—plays a big role in how capital gains taxes are applied. Here’s a quick breakdown of how the IRS typically treats different types of real estate:

Understanding how your property is categorized is the first step—because the tax strategies available to you depend on it. If you’re selling your primary residence, there’s good news: the IRS offers one of the most generous exclusions in the tax code.

Let’s take a closer look at how you might be able to avoid paying capital gains tax when selling your home in Texas.

How Can I Avoid Paying Capital Gains Tax When I Sell My Home in Texas?

If you’re selling your primary residence, there’s a strong chance you won’t owe any federal capital gains tax—thanks to one of the IRS’s most generous homeowner tax breaks.

Here’s how it works:

• Single filers can exclude up to $250,000 of capital gains
  

• Married couples filing jointly can exclude up to $500,000
  

This means if you bought your home for $300,000 and sold it for $800,000, you could potentially exclude up to half a million dollars of that gain—completely tax-free.

To qualify for the exclusion:

• You must have owned the home for at least two of the last five years
  

• You must have lived in it as your main residence for at least two of the last five years
  

• You haven’t used the exclusion on another property in the last two years
  

This is known as the ownership and use test, and it’s where people often get tripped up—especially if they’ve moved for work, rented out the property for a time, or owned multiple homes.

At Hall Accounting Co., we’ll help you sort through your timeline and documents to ensure you qualify and claim everything you’re entitled to. We’ll also flag any special scenarios that could impact eligibility—like divorce, death of a spouse, or partial exclusions for unforeseen circumstances.

Ready to Talk Through Your Capital Gains Tax Scenario?

Every real estate transaction is different—and so is every tax situation. Whether you're selling a long-time residence, parting ways with an investment property, or navigating an inherited home,

If you still have questions about how capital gains tax will affect your plans to sell real estate, book a free consultation with our team. Our accountants and tax advisors specialize in real estate tax and accounting and can help you navigate issues such as:

• Estimating your potential capital gains tax
  

• Determining if you qualify for an exemption or exclusion
  

• Exploring strategies like 1031 exchanges or basis adjustments
  

• Creating a custom tax plan that supports your long-term goals
  

Given the fluctuations of capital gains tax laws in recent years, we recommend you thoroughly investigate tax implications before moving to sell your property. Schedule your free consultation with us to get peace of mind before you list.