Downsizing in Dallas: What Empty Nesters Need to Know Before Selling in 2026

Can I downsize my Dallas home without paying capital gains tax?

Most empty nesters in the Dallas-Fort Worth area can sell their family home and pay zero federal capital gains tax, thanks to the Section 121 exclusion. Married couples filing jointly can exclude up to $500,000 in profit; single sellers can exclude $250,000. Since most DFW homeowners purchased well before the recent run-up, their net gain typically falls within these thresholds. Texas also has no state income tax, so there's no state-level capital gains hit either.

By Paul Blair | July 2, 2026

The kids are grown. The bedrooms are quiet. The yard that used to feel like a backyard is now just something to mow on weekends.

If this sounds familiar, you're probably at the point where the question isn't whether to downsize --- it's whether the numbers actually work.

Here's what I tell every DFW empty nester who walks through this with me: the numbers almost always work better than you think.

The Equity Picture in DFW

The Dallas-Fort Worth Metroplex had one of the strongest home price runs in the country from 2019 through 2023. If you've owned your home for more than five years, there's a good chance you're sitting on significant equity --- often $200,000 to $500,000 or more on a family home in the $550,000-$900,000 range.

Here's a simplified example:

• Sell your $700,000 family home in Plano or Frisco
• Net approximately $630,000-$650,000 after commissions, closing costs, and minor concessions (roughly 7-9% all-in)
• Purchase a right-sized condo or smaller single-family home for $400,000-$475,000
• Walk away with $175,000-$250,000 in liquid capital

And reduce your monthly housing costs by $1,500-$2,500 in the process.

That's not just a smaller home. That's a fundamentally different financial position.

What the Numbers Look Like

Here's a realistic selling cost breakdown on a $700,000 DFW home in 2026:

• Agent commission: 5.0-6.0% combined ($35,000-$42,000) --- negotiable post-NAR settlement
• Title insurance + closing fees: $2,000-$2,500
• Prorated property taxes: $3,000-$5,000 (depends on closing date)
• Minor prep and staging: $2,000-$5,000
• Potential buyer concessions: $5,000-$15,000 (1-2% in the current buyer's market)

Estimated total selling costs: $47,000-$69,500. Net proceeds on a $700,000 sale run approximately $630,000-$653,000 before your mortgage payoff. For a complete line-by-line breakdown, here's what Dallas sellers actually pay at closing.

What About Capital Gains?

This is the number one fear that holds DFW empty nesters back. Most of the time, it's unfounded.

The IRS Section 121 exclusion lets you exclude up to $500,000 in capital gains (married filing jointly) or $250,000 (single) from federal tax when you sell your primary residence --- as long as you've owned it and lived in it for at least two of the past five years.

On a $700,000 home purchased in 2015 for $350,000, your gain is roughly $350,000. That falls under the $500,000 married exclusion --- no federal capital gains tax owed. Texas has no state income tax, so there's no state-level tax on that gain either.

The one scenario where this gets more complicated: if you purchased very long ago or if your home has appreciated dramatically (Highland Park and Preston Hollow have seen some properties triple or quadruple in value), your gain might exceed the exclusion. If you've also rented part of the home at any point, depreciation recapture applies.

Worth a 30-minute conversation with a CPA before you list --- but don't let the fear of taxes stop you from doing the math first. There's a deeper breakdown in this post on capital gains when selling your home in Texas.

The Texas Property Tax Freeze --- What Happens When You Move?

If you're 65 or older and have your homestead exemption established, you've likely benefited from Texas's school tax ceiling --- a freeze on the school district portion of your property taxes that prevents them from rising above the level set in the year you turned 65 (or first qualified).

Most empty nesters I talk to don't know what happens to this when they move. Here's the good news: you can transfer that school tax ceiling proportionally to a new Texas home.

This is called a portability transfer. If your current home is appraised at $600,000 and your tax ceiling is calculated at a 1.2% school district rate, that ceiling transfers to your new home on a proportional basis. It doesn't mean zero taxes --- it means the school district cannot raise your assessment above that frozen level on the new property.

This provision makes staying in Texas --- even in a smaller home --- significantly more attractive than moving out of state. Combined with the City of Dallas Over-65 exemption (now $175,000) and the 2026 statewide $140,000 school homestead exemption, the property tax picture for downsizing seniors in DFW is genuinely favorable.

Is Now a Good Time to Downsize?

The current market is a buyer's market, which makes the selling side softer but the buying side better. Here's what the 2026 data shows:

• Active DFW listings: 25,000-33,000 (elevated by historical standards)
• Average days on market: 45-62 days
• Sellers capturing approximately 97% of list price
• 49% of closed transactions include some form of seller concession

For a downsizer, this dynamic actually works in your favor. You'll face more competition on the sale of your larger home, but you'll have far more options, less pressure, and more negotiating room when you're buying the smaller one. That's the direction most empty nesters want the leverage to go.

A well-priced, well-prepared home still sells in this market. Getting a pre-listing inspection before you list puts you in control of the condition narrative. And pricing with 2026 comps --- not 2022 --- is non-negotiable. Here's what the data shows about how to price your home to sell in Dallas right now.

Sell First or Buy First?

In most downsizing scenarios, sell first is the right move.

When you sell first, you know exactly how much capital you're working with. You shop for the smaller home as a non-contingent buyer --- a stronger negotiating position. You avoid carrying the cost of two mortgages, two property tax bills, and two sets of insurance.

The common worry: "What if I sell and can't find the right place to buy?"

In the current DFW market --- with 25,000+ active listings and builders still offering meaningful incentives on quick-move-in inventory --- this risk is lower than it was during the 2021-2022 shortage. A well-negotiated seller leaseback (typically up to 90 days post-closing under TREC Form 15-7) can give you time to land in the right home after your closing date. Many DFW sellers are using this option right now.

If you need your equity from the sale to close on the next property but aren't comfortable selling without a firm destination, a bridge loan or HELOC can bridge the gap. Bridge loans in Texas typically run 8-10% interest and are structured as short-term instruments (6-12 months) --- they cost money, but they may be worth it if you've found exactly the right home and don't want to lose it.

What Should You Buy Next?

What matters most to you now? Maintenance, location, lifestyle, or budget? That answer usually tells you more than any square footage comparison.

Single-family home (right-sized): The most common landing spot for DFW empty nesters. A 3-bed, 2-bath in Plano, McKinney, Richardson, or the Park Cities area gives you the familiarity of a house without the burden of a large lot. Easier to finance, stronger appreciation history than condos.

Townhome: Popular for empty nesters who want walkable neighborhoods --- Uptown, Knox-Henderson, Lower Greenville, Bishop Arts, or Legacy West in Plano. Lower exterior maintenance, usually HOA-covered. Watch the fees: they range from $250 to $600 per month depending on the community.

Condo: Right-sized and low-maintenance, with the most lock-and-leave flexibility. The tradeoff: lender approval of the condo association is required, which can complicate financing, and appreciation tends to run slower than single-family.

Think about how you actually live now --- not how you lived when the kids were home. That usually points you to the right property type faster than any spreadsheet.

One More Thing Worth Saying

Selling the family home is not just a financial transaction. For most empty nesters, it's one of the most emotionally significant moves they'll ever make.

The house where your kids grew up, where holidays happened, where you weathered hard years --- it holds weight that doesn't show up in a CMA. That's real, and it's worth acknowledging.

The goal isn't to rush you out of a home you love. It's to make sure you have the full picture --- the tax clarity, the equity math, the timing context --- so that when you're ready, the decision is yours to make from a position of knowledge rather than fear.

Frequently Asked Questions

Will I owe capital gains tax when I downsize and sell my Dallas home?

Most DFW empty nesters owe zero federal capital gains tax on the sale of their primary residence. The IRS Section 121 exclusion allows married couples to exclude up to $500,000 in gains, and single sellers can exclude $250,000, as long as you've owned and lived in the home for at least two of the past five years. Texas has no state income tax, so there's no state-level capital gains tax to worry about.

What happens to my homestead exemption and property tax freeze when I sell?

Your homestead exemption ends when you sell your current home. However, if you're 65 or older and have a school tax ceiling established, you can transfer that ceiling proportionally to a new Texas home. File for your homestead exemption on the new property as soon as you close --- you can apply anytime, and the April 30 deadline applies for the following tax year's benefit.

Should I sell my family home before buying a smaller one in DFW?

In most cases, yes. Selling first gives you a clear picture of your net proceeds, lets you shop as a non-contingent buyer, and eliminates the stress of carrying two homes simultaneously. A seller leaseback (up to 90 days post-closing) can give you the time you need to find and close on the next home without rushing.

How long will it take to sell my DFW home in 2026?

In the current market, well-priced homes in established DFW suburbs typically go under contract in 30-60 days. Total time from listing to closing runs 60-90 days. If you have a target move date, build that into your planning window.

Is now a good time for DFW empty nesters to downsize?

The selling environment is softer than it was in 2021-2022, but the buying environment is significantly better --- more choices, less competition, and more room to negotiate on the smaller home. For downsizers, that dynamic actually works in your favor. The equity math and tax picture remain strong.

Downsizing in DFW is one of the most financially powerful moves an empty nester can make --- and for most homeowners who've owned for five or more years, the math works far better than they expect.

If you want to see what your specific numbers look like --- what your home is worth today, what you'd actually net after all costs, and how that positions you for what's next --- get a home value estimate here or reach out directly. No pressure, just numbers.

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.