Last updated on January 30th, 2023 at 01:01 pm

Quick Answer

Most people won't have to pay capital gains on their house they sell! However, if you have a profit of more than $250K (500K for married couples) you may not be able to claim the exemption.

The taxes you might owe should be taken into account when selling a home in Texas along with a number of other issues. Texas doesn’t have a state income tax, which is one of the greatest things about selling a house there; and makes the state a very desirable location

However, in some circumstances, you are still responsible for paying federal taxes. Let’s examine the taxes you might owe when you sell your Texas house in more detail.

 

What are Capital Gains

Understanding capital gains and the taxes associated with them is important when it comes to real estate taxes. If you are looking into capital gains, then you interested in your investments and the tax liability you are responsible for. When you sell a house for a profit of any type, you must pay these taxes. 

This rule applies to any asset you’ve owned for longer than a year and that you were able to sell for a profit, not only homes. The explanation is that you are making money by selling something, which is seen as a business transaction for taxation purposes.

People should be aware of two types of capital gains.

If you’ve only owned the property for less than a year, short-term capital gains will be taxable on the selling of your home. The amount you would pay would be based upon your tax bracket. 

You will be responsible for paying income taxes at your standard tax rate. Long-term capital gains are another possibility, and they will be relevant if you owned the asset for more than a year. Rates on long-term capital gains are far lower and, depending on exemptions, seller income, and filing status, they may even be zero.

Is Your Capital Gains Tax Exempt

It’s likely that you won’t owe tax liabilities on the sale of your Texas house. In fact, due to exclusions incorporated into the tax legislation, many homeowners wind up without paying them. But how can you tell if you’re eligible?

 Buyers who purchased a property and have a profit of more than $250,000, or $500,000 for a married couple, you will not be able to claim the exemption, will have to pay capital gains tax on the sale.

In Texas, you may be able to avoid paying capital gains tax on the sale of your home if it is your primary residence. To qualify, you must have owned and lived in the home for at least two of the five years prior to the sale. 

Third, throughout the previous five years, you had to have spent more than two years residing in the home. 

The last restriction is that you cannot have used this exemption on another property during the previous two years. You can only claim this exemption once every five years. 

If you don’t meet the primary residence requirement, you may still be able to exclude a portion of your capital gain from taxes by using the capital gains exclusion for home sellers.

If you satisfy those conditions, you probably won’t owe capital gains taxes on the sale of your Texas house if the proceeds are less than those sums. 

However, if your profits exceed those limits, you will still be required to pay capital gains taxes on them. Of course, you will still need to pay tax to the IRS if you don’t meet all of these standards. The capital gains tax rate in Texas is currently 6.25%.

How Much Do Gains Cost

A buyer must pay capital gains on the sale of your Texas house if you don’t qualify for an exemption. However, the amount you pay varies based on the circumstances and your income level. 

According to the most recent IRS standards, there are several levels that you should take into account.

Even if you don’t qualify for the exemption, you may still be able to avoid paying capital gains taxes. 

For example, if your annual income is less than $39,375 for single filers and $78,750 for married couples filing jointly or as head of household; you are not required to pay capital gains on the sale of your property if that is your income level.

  • The capital gains tax rate that is most frequently used is 15%. Anyone who earns between $39,376 and $434,550 per year as an individual, or between $78,751 and 488,850 per year for those who are married filing jointly or who are the head of household, is subject to this. If you complete these requirements and sell your home for $250 000, for instance, you will owe $37 500 in capital gains taxes.

  • The maximum tax on the selling of your Texas house is 20%. If you earn more than $434,550 for single taxpayers and $488,850 for joint filers, this would apply to you. In this case, a home sale for $250,000 would result in a $50,000 capital gains tax payment.

You will need to file a federal tax return and a state tax return if you have a profit on the sale of your home. 

The excellent thing is that since your property was sold in Texas, you won’t have to pay additional state capital gains taxes on top of any possible federal taxes to the government.

Don’t Forget about Property Tax

You are liable for paying property taxes as long because you still own your home in Texas. Unfortunately, Texas ranks among the most expensive states to live in that regard. Texas homeowners pay $3,327 in real estate taxes on average, ranking fifth in the nation and being 59 percent more expensive than the typical American taxpayer.

Be aware that you will be liable for the tax until you sell your home. Although those regulations may soon change, keep them in mind if your closing takes much longer or you’re considering selling your home right away. The more you are responsible for, the longer you wait.

How Do I Avoid the Expenses

Most people will probably get more money when they sell their house than the price they paid for it, particularly in the current market; and in most other of Texas’s major markets.

 If you make a profit, the capital gain will be taxed. If you’re wondering how to avoid paying capital gains tax on real estate, one strategy is to refuse any offers that total higher than the $250,000 (or $500,000) that you originally paid for the property in order to be eligible for the exemption. 

Your cost basis will also lower any possible capital gains on the sale of the home if significant additions or home renovations were performed.

Additionally, homeowners can invest their winnings in a similar property through 1031 exchanges to actually pay capital gains taxes on their Texas properties. Your real estate agent may be able to direct you to a tax professional who can give you more information.

With a 1031 exchange, you can exchange like-for-like property while deferring the home’s tax. If you wish to think about a 1031 exchange, speak with your accountant since this strategy is frequently employed by firms. They can give you the advice you need based upon your specific situation.

You can use tax losses from depreciating assets to offset your capital gains. If you invest in real estate, it can be advantageous for you to sell some of your holdings at a loss to balance off the gains on other holdings. 

This practice is referred to as tax harvesting. It is essential to contact with a tax expert if you wish to try this in order to affect your capital gains tax.

What happens if I don’t pay my Tax in Texas

The IRS wants to know about any capital gains made from the sale of stocks, real estate, or other capital assets.

  • If you fail to include the information in your tax filing, the IRS will most likely find out through another reporting mechanism.
  •  The IRS has the authority to levy fines and penalties for your carelessness, and they frequently do so. They can seek criminal prosecution if they can show that the act was intentional, fraudulent, or intended to evade payment of legitimate taxes. Seek help from your tax professional.

Receive a Cash offer on your Property

Now that you know that the vast majority of sellers aren’t going to have to pay capital gains taxes in Texas, you still might want a fair cash offer for your property in any condition.

Other options would be to sell your house to a cash buyer like us and simply walk away without having to make any repairs or pay any closing costs. Investors will purchase your home in any condition and will pay for the home quickly after determining the value. 

Sellers won’t be responsible for any fees or additional commissions. And if a seller owes taxes on the investment property, this process can help alleviate any outstanding issues you might have with the government. By working with a buyer (with experience), this might mean more money in your pocket

Frequently Asked Questions

Capital gains are defined as the profit realized from the sale of certain types of assets, such as stocks, bonds, and real estate. In order to be subject to capital gains taxes in Texas, you must have sold the asset for more than you paid for it.

A Texas resident is an individual who is domiciled in Texas, or an individual who is not domiciled in Texas but who maintains a permanent place of abode in Texas and spends more than 185 days of the year in the state.