Do you have to pay capital gains tax on real estate in Texas?

If you’re selling real estate in Texas, you may be relieved to learn that the state doesn’t impose its own capital gains tax on property sales, but the federal capital gains tax still applies. This tax, which the IRS levies (or charges) on the profit from your sale, varies based on how long you held the property and your income level. 

Understanding how capital gains tax impacts your net profit is essential for effective financial planning in Texas, where only federal guidelines — rather than additional state requirements — shape your tax obligations.

What is capital gains tax?

Capital gains tax is a tax on the profit made when you sell an asset, like real estate, stocks, or other investments, for more than you paid to acquire it. 

In real estate, a capital gains tax applies when you sell a property for more than you originally paid for it. This tax is levied only on the "gain" — or, the difference between the property's purchase price and its sale price. 

Your capital gains tax rate will depend on how long you owned the home, your income level, and your filing status. If you've owned the property for a year or less, you'll pay a short-term capital gains rate. If you’ve owned the home for a year or more, you'll pay long-term capital gains tax rates.

Learn more about capital gains tax and how you can avoid it.

How much is capital gains tax in Texas?

In Texas, there is no state capital gains tax, meaning that residents do not owe taxes to the state on profits earned from selling assets, such as real estate or investments. This absence of a state-level tax can make Texas an attractive location for real estate investors and business owners.

However, the federal capital gains tax still applies to asset sales in Texas. So, when Texans sell a property or other asset for a profit, they must report and pay capital gains tax to the IRS.

Federal capital gains tax rates differ based on how long you owned the property and your income bracket. If you owned the property for more than one year, the sale is eligible for long-term capital gains tax, which has lower tax rates (0%, 15%, or 20%) than short-term capital gains tax. For properties held one year or less, any profit from the sale is taxed as short-term capital gains, matching your ordinary income tax rate, which could be as high as 37%.

Home exclusion

Homeowners selling their primary residence can also take advantage of the home sale exclusion, which allows up to $250,000 of gain to be excluded from taxes for single filers, or $500,000 for married couples filing jointly. To qualify, the home must have been your primary residence for at least two of the past five years, and you typically cannot use the exclusion more than once every two years.

What about other taxes to expect when selling property in Texas ?

Capital gains taxes are just the tip of the iceberg when it comes to real estate taxes in Texas. Texan homeowners should also consider transfer taxes, inheritance taxes, and other lesser-known levies when selling property in the state.

Transfer tax

A transfer tax is a fee imposed by state or local governments when a property changes ownership, typically calculated as a percentage of the property's sale price. Texas does not impose a state-level real estate transfer tax on property sales, significantly reducing the costs associated with buying or selling real estate.

Inheritance and estate tax

Texas does not have an inheritance tax or an estate tax, which would otherwise apply when a property is passed to heirs after a property owner’s death. This means that Texas residents can pass on real estate without additional state tax burdens that are found in some other states.

However, like capital gains, federal estate tax may still apply to larger estates that exceed the federal exemption threshold, which is currently $13.61 million for individuals in 2024 and $13.99 million in 2025. (That means the limit is higher if you are filing jointly.)

State income tax

Texas has no state income tax, meaning any gains from selling real estate (whether a primary home or investment property) are not taxed by the state. Only federal capital gains tax applies, making Texas appealing for real estate investors and homeowners who sell their property.

Read more about the tax consequences of selling a home.

What about buying-related real estate taxes in Texas?

When buying a home in Texas, buyers will encounter certain real estate taxes and fees. Here’s what you need to know:

Property tax

Texans pay as relatively high property taxes compared to the national average, largely due to the absence of a state income tax. This means that property taxes play a vital role in funding local services, such as public education, road maintenance, and emergency services. According to the Texas Comptroller's Office, property tax revenue is essential for local governments, making up a significant portion of their budgets.

Property tax rates can vary widely across the state, as they are determined by local jurisdictions, including counties, cities, and school districts. Each of these entities sets its own tax rates, leading to significant differences in tax burdens depending on the property's location. For instance, urban areas often have higher property tax rates than rural areas due to the greater demand for services.

Texas property taxes are assessed annually based on the appraised value of the property. Homeowners receive a notice of appraised value each year, and they can challenge the appraisal if they believe it to be inaccurate. The actual tax bill is calculated by multiplying the property’s assessed value by the combined tax rates of the local taxing authorities.

Sales tax on home purchases

In Texas, purchasing a home differs significantly from buying a car or other consumer goods, as the state does not impose a sales tax on real estate transactions. This means that when you buy a new or existing home, you won't face any additional state sales tax on the purchase price.

For buyers purchasing new construction homes, there is a notable distinction regarding sales tax on construction materials. Texas does impose a sales tax on materials used in new construction; however, this cost is typically absorbed into the builder's pricing and is not directly charged to the buyer at closing. Consequently, newly built homes may not see a line item for sales tax, the tax is indirectly reflected in the overall pricing structure.

Other closing costs

While Texas does not impose a sales tax on home purchases, buyers should be prepared for various closing costs that come with acquiring a property. These expenses typically include appraisal fees, title insurance, and loan origination fees, which usually range from 2% to 5% of the purchase price. 

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Buyers may also opt to purchase optional services such as home inspections and homeowner’s insurance at closing. Although these are not classified as taxes, they can feel like it because they are essential for safeguarding the interests of both the buyer and the lender and aren’t reflected in the sticker price of a home.

HOA Fees

In certain neighborhoods, homeowners may be subject to fees imposed by a homeowner’s associations (HOA) to maintain shared amenities and services. These fees can vary significantly depending on the community and the range of services provided, such as landscaping, pool maintenance, and community events. Unlike property taxes, which are assessed by local governments, HOA fees are set by the association and are typically paid monthly or annually.

Homeowners should carefully review the HOA's rules and fee structure before purchasing a property, as these costs can impact overall housing expenses. It's also essential to understand the association's regulations and how they may affect property use and values.

Sell with Orchard

Selling your home doesn’t have to feel like a chore. When you list with Orchard, you can move into your new home before putting your old one on the market. We’ll even handle preparing your home for sale, like making value-boosting home improvements at no out-of-pocket cost to you. Interested in learning more? Get in touch today!