Capital Gains When Selling Your Home in Texas: What Dallas Sellers Need to Know

Do you pay capital gains tax when selling your home in Texas?

Most Dallas homeowners who sell their primary residence pay zero in capital gains taxes — federal or state. Texas has no state capital gains tax, and the federal Section 121 exclusion lets single filers exclude up to $250,000 in profit, and married couples filing jointly up to $500,000, as long as the home was your primary residence for at least two of the last five years. For the majority of DFW sellers, that covers the entire gain.

By Paul Blair | June 1, 2026

---

Start with the most important fact: Texas has no state capital gains tax.

There's no state income tax in Texas, and that extends to capital gains. When you sell your home in Dallas, Fort Worth, Plano, or anywhere else in the state, you have exactly one taxing authority to think about: the federal government. That alone is a significant financial advantage over sellers in California, New York, or Oregon, where state capital gains rates can add another 7%--13% on top of federal taxes.

But what you really need to understand is the federal exclusion — because for most Dallas homeowners, it eliminates the federal tax bill entirely.

The Section 121 Exclusion: $250,000 for Singles, $500,000 for Couples

Under Section 121 of the Internal Revenue Code, you can exclude a significant amount of gain from the sale of your primary residence from federal income tax:

• $250,000 if you're a single filer
• $500,000 if you're married and filing jointly

This isn't a deduction. It's an exclusion — the gain never shows up in your taxable income at all.

So if you and your spouse bought a home in Plano in 2017 for $320,000, made $30,000 in improvements, and you're selling it today for $650,000, your gain is roughly $300,000. That entire $300,000 falls under the $500,000 married exclusion. You owe nothing — not to Texas, not to the IRS.

How to Qualify

To use the full exclusion, you need to meet two requirements:

1. Ownership test: You've owned the home for at least two years out of the five-year period ending on the sale date.
2. Use test: The home was your primary residence for at least two years out of that same five-year period.

The two years don't have to be consecutive. And they don't have to overlap — you can own the home for two years and live in it for two different years within that five-year window and still qualify.

You can only use this exclusion once every two years.

What Counts as Your "Gain"?

Your gain is the difference between your adjusted basis and your net selling price.

Adjusted basis = original purchase price + capital improvements − any depreciation claimed

Capital improvements include a new roof, kitchen remodel, HVAC replacement, or an addition. They don't include routine maintenance — cleaning, painting, landscaping, or appliance repairs.

Your net selling price is your gross sale price minus selling costs: agent commissions, closing costs, staging fees, and similar expenses.

Example: You bought your home in Richardson for $275,000 in 2019. You added a deck for $15,000 and replaced the HVAC for $8,000. You're selling for $520,000 with $20,000 in selling costs.

• Adjusted basis: $275,000 + $15,000 + $8,000 = $298,000
• Net selling price: $520,000 − $20,000 = $500,000
• Gain: $500,000 − $298,000 = $202,000

That $202,000 falls well under the $250,000 single-filer exclusion. No federal tax owed.

2026 Federal Capital Gains Rates If You Don't Qualify for the Full Exclusion

If your gain exceeds the exclusion amount, or you don't meet the ownership and use tests, the IRS taxes the remaining gain at long-term capital gains rates (for assets held more than one year):

• 0% — Taxable income below $49,450 (single) or $98,900 (married filing jointly)
• 15% — Taxable income between those thresholds and $545,500 (single) or $613,700 (married)
• 20% — Taxable income above those thresholds

For most Dallas sellers, even if they have a gain that partially exceeds the exclusion, the remaining amount is taxed at 15%.

Partial Exclusion: When Life Gets in the Way

If you sell before hitting the two-year mark, you may still qualify for a partial exclusion if the sale was driven by:

• Job relocation — new workplace is at least 50 miles farther from the home than your previous job
• Health or medical reasons — treatment for yourself or care of a family member
• Unforeseen circumstances — divorce, death of a spouse, multiple births from a single pregnancy, natural disaster, or job loss

The partial exclusion is prorated based on how much of the two-year requirement you actually met. If you lived in the home for 12 months (half of the required 24), you could exclude up to half the maximum — $125,000 for single filers, $250,000 for married couples.

When You Could Owe More: Rental Use and Depreciation Recapture

If you ever rented out part of your home, listed it on Airbnb, or claimed a home office deduction, the rules get more complex.

Any portion of the gain tied to periods of rental or business use is not eligible for the Section 121 exclusion. And if you claimed depreciation during those years, that depreciation is subject to unrecaptured Section 1250 gain — taxed at up to 25%.

If your home was ever partially rented or you deducted a home office, work through this with a CPA before you close.

A Real DFW Scenario Worth Walking Through

A married couple in Highland Park bought their home in 2016 for $1.1 million. They're selling in 2026 for $1.75 million. Selling costs total $65,000. No improvements, no rental use.

• Adjusted basis: $1,100,000
• Net selling price: $1,750,000 − $65,000 = $1,685,000
• Gain: $1,685,000 − $1,100,000 = $585,000
• Minus the $500,000 married exclusion = $85,000 taxable gain

At a 15% federal rate, that's approximately $12,750 in federal tax. No Texas state tax. On a $650,000 gross gain, that's a very favorable outcome.

The Bottom Line for Dallas Sellers

The combination of no Texas state capital gains tax and the generous federal Section 121 exclusion means most Dallas homeowners pay little to nothing when they sell. If you've owned your home for at least two years and lived in it as your primary residence, you're likely covered.

Where this gets more complicated: if your gain is very large (above $500,000 for married couples), if you've had any rental use, or if you haven't hit the two-year mark. Those situations are worth a conversation with a CPA.

One more thing to keep in mind: this exclusion can only be used once every two years. If you're considering selling multiple properties or timing back-to-back sales, plan accordingly.

Understanding your likely tax picture is part of calculating your true net proceeds from a Dallas home sale. If you want to know what you'll actually walk away with — after commissions, closing costs, your mortgage payoff, and taxes — that's exactly what a net proceeds estimate can show you.

If you're thinking about selling your Dallas home, see our breakdown of What Dallas Sellers Actually Pay at Closing for the full picture on costs. And if you own your home and haven't yet filed for the Texas Homestead Exemption, make sure you're not leaving that tax savings on the table either.

---

Frequently Asked Questions

Do I have to pay capital gains tax when I sell my house in Texas?

Texas has no state capital gains tax, so you only owe federal capital gains tax on any profit from your home sale. Most homeowners who have lived in the home as their primary residence for at least two of the last five years qualify for the Section 121 exclusion, which eliminates federal tax on up to $250,000 of gain (single filer) or $500,000 (married couple filing jointly).

What is the capital gains tax rate on a home sale in Texas in 2026?

If you exceed the Section 121 exclusion, gains on home sales held more than one year are taxed at the federal long-term capital gains rate: 0%, 15%, or 20%, depending on your total taxable income. Texas does not add a state-level capital gains tax. Most sellers fall in the 15% federal bracket for any taxable gain above the exclusion amount.

What if I haven't lived in my Dallas home for two full years?

You may qualify for a partial exclusion if you're selling due to a job relocation (new job at least 50 miles farther from the home), a health-related reason, or certain unforeseen circumstances like divorce, death of a spouse, or a natural disaster. The partial exclusion is prorated based on how many months of the two-year requirement you completed. A CPA can calculate your specific exposure before you close.

Does renting out part of my home affect my capital gains exclusion?

Yes. Any portion of the gain attributed to periods when the home was rented is not eligible for the Section 121 exclusion. If you claimed depreciation on that portion during the rental years, that depreciation is subject to unrecaptured Section 1250 gain, taxed at up to 25%. If your home was ever partially rented or used for a home office deduction, work with a CPA to run the numbers before closing.

Can I use the capital gains exclusion more than once?

Yes, but not more than once every two years. If you sold another home and used the Section 121 exclusion within the past two years, you won't qualify again until that two-year window has passed. If you're planning back-to-back sales, timing matters.

---

Understanding your tax picture is one of the most important parts of deciding whether — and when — to sell your Dallas home.

Get your free home value estimate at greysq.com/home-value to see what your home is worth today and start calculating your potential net proceeds. Or reach out directly at greysq.com/contact if you'd like to walk through your specific situation with someone who knows this market.

---

About Paul Blair

Paul Blair is the founder and broker of Grey Square, a virtual real estate brokerage representing buyers and sellers across Dallas and Los Angeles. With 22 years in the business and more than $200 million in closed transactions, Paul works the full range of the market, from luxury homes in the Park Cities and Preston Hollow to estates in the Hollywood Hills and across the Westside. Connect with Paul and the Grey Square team at greysq.com. TX TREC #9011505 | CA DRE #01792671.