Quick Answer: What Is Capital Gains Tax in Texas?
Capital gains tax refers to the tax charged when a person disposes of an asset for a profit; the asset could be stocks, real estate, or any form of investment. A question that is commonly asked is, what is the capital gains tax in Texas? Well the Texas capital gains tax is zero. This is because Texas has no state income tax, and therefore no capital gains tax. Nonetheless, Texans have to pay the federal capital gains tax on eligible gains, which depends on the length of time the asset was held (short-term vs long-term) and their federal tax bracket. Simply put, residents of Texas are exempt from the state capital gains tax, but the federal government still collects the due taxes. For this reason, Texas is a preferred location for investors.
Now let’s dive deeper.
Understanding Capital Gains Tax
Capital gains tax applies when an individual or business sells an asset for more than its original purchase price. The tax is categorized into:
- Short-term capital gains: Gains are taxed at the applicable income tax rates. Hence, they may attract up to 37% in taxes and represent gains from assets held for one year or less.
- Long-term capital gains: This form of capital gains is taxed at a federally reduced rate of 0%, 15%, or 20%, subject to the taxpayer’s income.
Does Texas Have a Capital Gains Tax?
One of the main pluses of residing in Texas concerns the fact that no state sales tax exists in the state of Texas, which connotes that there is, likewise, no state-lively capital gain tax. This sets Texas as one of the most investment, owner, and business taxation preferential states.
Despite the absence of state capital gains tax in Texas, one is not excluded from dealing with issues entirely. When selling an asset at a profit, the federal capital gains tax applies. It is fundamental to understand federal obligations to determine the extent of capital gains tax in Texas on real estate and investment asset sales.
Federal Capital Gains Tax Rates
Since Texas does not have a state capital gains tax, all capital gains taxes in Texas are determined by federal guidelines. For 2024, the federal capital gains tax rates are as follows:
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
| Single | Up to $47,025 | $47,026 – $518,900 | Over $518,900 |
| Married filing jointly | Up to $94,050 | $94,051 – $583,750 | Over $583,750 |
| Head of household | Up to $63,000 | $63,001 – $551,350 | Over $551,350 |
The rate you pay depends on your income and whether the gain is classified as short-term or long-term.
Capital Gains Tax on Real Estate in Texas
If you are trying to dispose of real property in Texas, you might endeavor to get an answer to an otherwise relevant question: What is capital gains TAX in Texas for real estate? As a state, this is hardly a unique issue; whereas federal law applies categorically, the citizen suffers greatly at the hands of state revenue agents. Here are the salient things to consider:
- Primary Residence Exemption– If you have lived in your home for at least two out of the preceding five years before selling, you may be exempt from tax on the first $250,000 ($500,000 if married) of capital gains.
- Investment Properties-Properties not considered your primary residence are open to federal capital gains tax based on the duration of their ownership.
- 1031 Exchange – Real estate investors can avoid bearing taxes for capital gains by investing in another like-kind property under a 1031 exchange by reallocating the net income that springs out of the sale.
How to Minimize or Avoid Federal Capital Gains Tax
Even though there is no state capital gains tax in Texas, there are ways to reduce your federal tax liability:
- Hold the Asset Longer – Keeping your asset for over a year would qualify you for a lower long-term capital gains rate.
- Offset Gains with Losses – Capital losses can reduce your taxable income against capital gains (tax-loss harvesting).
- Utilize Tax-Advantaged Accounts – Invest in retirement plans like IRAs and 401(k)s to defer or entirely escape capital gains tax.
- Income-Based Exemptions for Capital Gains Tax – You may claim the 0% federal capital gains tax rate where your income is too low to make the target.
Capital Gains Tax on Inherited Property in Texas
If the property gets inherited in Texas, then the property takes advantage of a step-up in basis, wherein the property value is adjusted to the fair market value on the initial owner’s date of death. This reduces taxable capital gains if you decide to sell the property later.
For example, consider your parents’ house, which was purchased for $100,000 and passed down to you at a fabulous resale value of $300,000. As an illustration, if it was sold for $310,000, you are liable for capital gains tax only to the extent of the $10,000 profit (not the $210,000 difference between the two original prices).
How We Can Help?
Selling a house or an investment property in Texas? We’ll make it pretty easy for you. Fill out the form to get a fair offer quickly, and if you like it, we can make the sale with no further examination. Stressing over taxes, closing costs, and repairs no longer is the norm, we deal with the hard part! We help sell house fast El Paso, also if you require any input, we are available almost all day. If you are ever interested, please feel free to contact us for a no-obligatory offer so that you can take the stress out of your property sale!