Capital Gains Tax When Selling a House in Texas
Two facts cover most Texas sellers. There is no state income tax, so nothing is owed to Texas. And the federal section 121 exclusion shelters up to $250,000 of gain for a single filer or $500,000 for a married couple filing jointly, so most people who lived in the house owe nothing federal either. The details below are general information, not tax advice; confirm your own numbers with a CPA.
How the exclusion works
- You must have owned the home and used it as your principal residence for at least two of the five years before the sale. The periods do not have to be continuous.
- For the $500,000 amount, either spouse must meet the ownership test, both must meet the use test, and neither used the exclusion in the prior two years.
- You can use it once every two years. The 2026 amounts are unchanged from prior years.
- Gain is the sale price minus selling costs minus your basis. Basis is what you paid plus capital improvements, so keep the receipts for the roof, the kitchen and the pool.
Capital gains calculator
Example
A couple bought a Lakewood house for $500,000, put $80,000 into improvements, and sell for $1,050,000 with $70,000 of selling costs. Gain is $1,050,000 minus $70,000 minus $580,000, which is $400,000. Under the $500,000 exclusion the federal tax is zero. A single owner in the same house would exclude $250,000 and owe long term capital gains tax on the remaining $150,000.
Rentals, second homes and conversions
If the house was a rental, two things change. Depreciation you claimed, or could have claimed, is recaptured at up to 25 percent regardless of the exclusion. And for a property converted from rental to residence after 2008, the exclusion is prorated between qualified use and non qualified use. A second home that was never your principal residence gets no exclusion at all. Investors with a large gain often use a 1031 exchange into another investment property instead, which defers the tax rather than eliminating it.
Sources
Brackets: IRS Rev. Proc. 2025-32 (October 2025), 2026 tax year. Exclusion: IRC section 121 and IRS Publication 523. Net investment income tax: IRC section 1411, thresholds not indexed. Married filing separately: enter only your share of the sale price, selling costs and basis.
Property tax is separate
None of this touches property tax, which is prorated at closing between you and the buyer. See the Dallas County property tax page.
Selling a house with a big gain?
We will run the net sheet and tell you what to ask your CPA before you list.
Selling expenses reduce the gain, so the cost of selling a house in Texas and seller closing costs in Texas are worth reading next.
Questions people ask
Is there capital gains tax on selling a house in Texas?
No Texas tax. Federal tax applies only to gain above the section 121 exclusion of $250,000 single or $500,000 married filing jointly, if you owned and lived in the home two of the last five years.
What if I rented the house out?
Depreciation you claimed is recaptured at up to 25 percent even if you qualify for the exclusion, and for a home converted after 2008 the exclusion is prorated between qualified and non qualified use.
How often can I use the exclusion?
Once every two years.
Selling in Texas, the full series:
- Selling a House in Texas
- Cost of Selling a House in Texas
- Seller Closing Costs in Texas
- Capital Gains Tax When Selling a House in Texas
- Selling a House Without a Realtor in Texas
- Selling a House As Is in Texas
- How Long Does It Take to Sell a House in Texas?
General information, not legal or tax advice. Figures quoted from the named sources on the dates shown.