Do I Have to Pay Taxes When I Sell My House in Texas?

Because when you search whether you'll owe taxes on a home sale, a lot of what comes up was written for another country, with its own rules and its own tax office. Some of the rest is from here, but from many years ago.

In the United States, the tax on the profit from selling a home is federal. The IRS handles it, not the state. And Texas has no state personal income tax, so the federal rule is the one that matters.

It isn't the sale price, and it isn't what lands in your account either. For the IRS, the profit (the gain) is, in plain words:

1. What you receive from the sale, minus the costs of selling,
2. minus what the house cost you. That includes what you paid to buy it and, generally, improvements that added value, like a new room, a new roof or a remodeled kitchen.

That's why receipts matter. An improvement you can't document is an improvement your CPA can't count.

And keep in mind: what you still owe your lender doesn't change your gain. You can have a large gain and little cash at closing, or the other way around.

Generally, the federal rule says that if you owned the home and lived in it as your main home for at least two of the last five years before the sale, you can exclude a significant part of the gain from tax. The limit is one amount for a single person and a higher amount for a married couple filing jointly.

A few points about the rule, in general:

• The two years don't have to be in a row. They're counted within the last five years.
• It can usually be used once every two years.
• If you sell before two years because of a job change, health, or another situation you didn't see coming, part of the rule may still apply.

Your CPA confirms whether you qualify and how much applies in your case. The IRS covers all of this in its guide for home sellers, Publication 523.

Then the math changes. A rental, a second home or a piece of land doesn't use the same rule as your main home. If you inherited the house, there are separate rules for how its cost is figured too.

In any of those cases, talk to a CPA before you sign a contract. Sometimes the timing of the sale changes the result.

No. This is one of the ideas I hear most, and it has a history: it used to be true. Years ago, the rule required you to buy another home of equal or higher price to put off the tax. That rule was replaced in 1997.

Today, the rule for your main home doesn't depend on buying another one. You can sell and buy something smaller, rent, or move in with family, and the rule is applied the same way. If you're selling in order to buy, that changes your plan for dates and money, not your taxes. We work out that plan on the sell and buy page.

There are no tricks. There's paperwork. Here's what's in your hands:

• Gather receipts for the improvements you've made since you bought the house.
• Keep your purchase paperwork, including your closing statement from when you bought.
• Be clear on your dates: when you bought it and since when you've lived there.
• Talk to your CPA before you list, especially if you didn't live in the house the whole time, rented it out for a while, inherited it, or are going through a divorce.

Those are a different tax, the county and city taxes, and in Texas they're paid for the whole year, usually at year end. At closing, your share of the year is calculated and credited to the buyer. It's not a penalty for selling; it's the house bill split between the two owners. I explain it alongside the other costs in the costs of selling and buying in the same year.

Does the title company tell the IRS I sold?

It may report the sale on a form called 1099-S. Getting one doesn't mean you owe tax. Your CPA tells you whether the sale needs to go on your return.

Does Texas tax the sale of a home?

Texas has no state personal income tax, so the gain is reviewed under the federal rule. The year's property taxes are split at closing, as in any sale.

What if I'm not a US resident for tax purposes?

There are special rules when a home is sold by someone who isn't a US resident for tax purposes, and money may be withheld at closing. The title company and your CPA tell you whether it applies. Ask at the very start.

Do my spouse and I get the same limit as a single person?

A married couple filing jointly may have a higher limit, if they meet the conditions. Your CPA confirms it.

Can you tell me how much I'll owe?

No. A CPA works that out with your paperwork. What I can give you is an estimate of what your house is worth and what you'd keep after paying off the loan and the costs of selling, so your CPA has something to work with.

Selling the home you live in often doesn't leave a big tax bill, but that isn't something to guess. It's something to confirm. Gather your receipts, get your dates straight, and talk to a CPA before you list. The rest, what your house is worth and what you'd keep, we can work out together.

Want your home's value to bring to your CPA?

You can request it at veronicayeary.com/home-value. If you'd rather go through it together, call or text me at 469-441-8890, or email veronica@veronicayeary.com. No commitment, nothing to sign.

Veronica Yeary, Realtor®, CRS · ABR · SRS · CIPS, All City Real Estate DFW. I sell your home and find the next one with a single plan, with me from start to finish.

469-441-8890 · Call or text · veronica@veronicayeary.com · Email