How Do Capital Gains Taxes Work When Selling a House in Dallas, Texas?
If you’re thinking about selling your home in Dallas, chances are you’ve wondered:
“Will I owe capital gains taxes?”
It’s a smart question.
And one that deserves a clear, honest explanation.
Capital gains taxes can significantly affect your net proceeds — but many Dallas homeowners don’t actually owe them, especially when selling a primary residence. Others may owe taxes depending on timing, usage, or how much their home has appreciated.
This guide explains how capital gains taxes generally work when selling a home in Dallas, what exemptions may apply, and when you should bring in a tax professional for personalized guidance.
Important note: This article is for general informational purposes only. Always consult a licensed tax advisor or CPA for advice specific to your situation.
What Are Capital Gains Taxes?
Capital gains tax is a tax on the profit you make when you sell an asset — including real estate.
Here’s the simple version:
You buy a home
You later sell it for more than you paid
The difference between your selling price and your cost basis may be considered a capital gain
That gain may be taxable — unless an exemption applies.
Understanding Your “Cost Basis”
Your cost basis is not just what you paid for the home.
It typically includes:
Original purchase price
Certain closing costs when you bought
Major capital improvements (not routine maintenance)
Examples of improvements that may increase your basis:
Kitchen remodel
Bathroom renovation
Room additions
New roof
HVAC replacement
Flooring upgrades
Routine repairs (painting, minor fixes) usually do not count.
A tax professional can help you calculate your exact cost basis.
The Primary Residence Capital Gains Exclusion (Big News for Most Dallas Sellers)
Many homeowners selling their primary residence qualify for a generous federal capital gains exclusion.
IRS Exclusion Limits
Single filers: Up to $250,000 of profit may be excluded
Married filing jointly: Up to $500,000 of profit may be excluded
To Qualify, You Must Meet the “2 Out of 5 Year” Rule
You must have:
Owned the home for at least 2 years, and
Lived in the home as your primary residence for at least 2 years,
During the 5 years prior to selling
The two years do not need to be consecutive.
For many Dallas homeowners, this exclusion eliminates capital gains taxes entirely.
When Capital Gains Taxes May Apply
You may owe capital gains taxes if:
1. Your profit exceeds the exclusion limit
Luxury homes in neighborhoods like Highland Park, University Park, Preston Hollow, or Bluffview may exceed exclusion thresholds depending on appreciation.
2. The home was not your primary residence
Examples include:
Rental properties
Investment homes
Second homes
Vacation properties
These properties are typically subject to capital gains taxes.
3. You did not meet the ownership or occupancy requirement
If you lived in the home for less than two years, exclusions may be reduced or unavailable.
4. The home was used for business purposes
Partial business use (home office, rental portion) may impact exclusions.
Special Situations Dallas Sellers Often Ask About
Selling a Rental Property
Rental properties do not qualify for the primary residence exclusion.
Potential taxes may include:
Capital gains tax
Depreciation recapture
This is where tax planning becomes critical.
Inherited Property
Inherited homes often receive a stepped-up basis, meaning the home’s value is reset to its market value at the time of inheritance.
This can significantly reduce or eliminate capital gains taxes — but rules vary.
Divorce-Related Sales
Divorce can complicate ownership and exclusion eligibility.
Timing and filing status matter.
Relocation for Work
Some sellers may qualify for partial exclusions if selling due to job relocation, health issues, or unforeseen circumstances.
Texas-Specific Considerations (What Texas Does — and Doesn’t — Tax)
Texas does not have a state income tax.
That means:
No state-level capital gains tax
Only federal capital gains taxes apply
However, property taxes in Texas are high — and proration at closing still impacts net proceeds.
This is why planning your sale timing matters.
Capital Gains vs. Net Proceeds — Why Sellers Get Confused
Many sellers confuse:
Sale price
Net proceeds
Taxable gains
They are not the same.
Your taxable gain is not your sale price
It’s your sale price minus:
Cost basis
Selling expenses
Qualified improvements
This distinction often surprises sellers — in a good way.
How Selling Expenses Can Reduce Capital Gains
Certain selling expenses may reduce your taxable gain, including:
Real estate agent compensation
Title fees
Escrow fees
Marketing expenses
Legal fees related to the sale
Again, your tax professional can confirm what applies.
Why Timing Your Sale Matters in Dallas
Timing can influence:
Eligibility for exclusions
Tax year in which gains are reported
Overall financial impact
Examples:
Waiting to hit the two-year occupancy mark
Selling before or after year-end
Coordinating with retirement or relocation plans
A real estate professional like Mysti Stewart can help you align market timing with your personal goals — while your CPA handles tax strategy.
How the Mysti Stewart Group Supports Sellers Through Tax Questions
While Mysti Stewart and the Mysti Stewart Group do not provide tax advice, they play a critical role in helping sellers understand how taxes fit into the broader selling strategy.
Their process includes:
Helping estimate net proceeds
Flagging situations where tax guidance is important
Coordinating timelines with financial professionals
Identifying improvements that may impact cost basis
Providing clear documentation for your CPA
This team-based approach gives sellers clarity and confidence.
Questions to Ask Your Tax Professional Before Selling
Before listing your Dallas home, consider asking your CPA:
Will I owe capital gains taxes?
Do I qualify for the primary residence exclusion?
How do improvements affect my basis?
Does depreciation apply?
How should I document expenses?
Are partial exclusions available?
Having these answers early helps you plan smartly.
Conclusion: Most Dallas Homeowners Don’t Owe Capital Gains — But You Should Still Plan
For many Dallas homeowners, capital gains taxes are not an issue thanks to generous federal exclusions.
But every situation is different.
The smartest approach is to:
Understand the basics
Know when exclusions apply
Plan your timing carefully
Work with both a real estate expert and a licensed tax professional
With guidance from Mysti Stewart with the Mysti Stewart Group, you’ll understand the selling process clearly — and know when to bring in the right financial expertise.
👉 If you’re considering selling your home in Dallas and want help understanding how timing, pricing, and preparation impact your net proceeds, reach out to Mysti Stewart and the Mysti Stewart Group.
