No matter which state you live in, you are subject to capital gains taxes on profits made on any property bought mainly for the purpose of investment, including stocks or real estate. The amount of federal capital gains taxes does not vary from state to state, though some states have state capital gains taxes as well. The rules on property sale capital gains in Texas mirror those of many other states.
TL;DR (Too Long; Didn't Read)
The state of Texas will not impose any capital gains taxes when you sell your property. However, this does not mean that you are exempt from paying federal taxes for capital gains.
Real Estate Gains
When you sell a property in Texas, the profits, or capital gains, on that property equal the selling price of the property minus the original price that you paid for the property. If you buy a house for $100,000, for example, and sell the house for $150,000, you must declare the $50,000 difference as a capital gain for taxation. You can also, however, subtract any fees associated with selling the property, such as real estate agent fees, from the total profit. So, if you paid $10,000 to a realtor, you pay tax on only $40,000.
Understanding The Exceptions
When it comes to determining the profit on a property, you don’t always use the purchase price of the property as the profit basis. If you inherited the property in Texas, the base price of the property changes upon the death of the property’s original owner. The value of the house defaults to fair market value, as determined by an appraisal, at the time that you take possession of the house. When you figure the profits on the house, use this appraised value to determine the profits, instead of the original purchase price of the house.
Long-Term Capital Gains Taxes
As in any state, the amount of capital gains tax that you pay in Texas equals a percentage of the total profits made on the sale of the property. This percentage maxes out at 15 percent on the federal level, and depends upon state tax rates on the state level. Since Texas has no state income tax, or property gains tax, the sale of a property in Texas carries no additional tax burden over the federal capital gains.
Tax Return Responsibilities
The sale of a property in Texas, as in any other state, must be declared on the IRS’ yearly federal tax return. Capital gains are reported in the “Income” section of the tax return as a separate line item, which remains separate from the taxpayer’s earned income for the year. No matter how much earned income you make during the tax year, and what tax bracket you fall into as far as earned income, you will never pay more than the 15 percent maximum rate on capital gains.