When selling a house in Texas, you have to take a lot of different factors into consideration and that includes the taxes that you may have to pay. One of the best things about selling a house in Texas is it doesn’t have a state income tax, which makes it a very attractive place to sell a property. However, you are still on the hook for federal taxes under some situations. Let’s take a closer look at the taxes you may have to pay when you sell your home in Texas.
Taxes on Selling a House in Texas
The most important thing to understand when it comes to real estate taxes is capital gains and the taxes on them. These taxes are what you are required to pay when you sell a house for any kind of profit. This applies not just to homes but also any property or possessions that you’ve had for more than a year and that earned you a profit when you sold it. The reason is that you are selling something and making money, which is treated as a commercial transaction when it comes to taxation.
There are two kinds of capital gains you need to be aware of. Short-term capital gains will apply to your home sale is you’ve only owned the property for less than a year. In that case, you’ll only owe income taxes based on your regular tax bracket. There are also long-term capital gains, which will apply if you owned the property for longer than a year. Rates for long-term capital gains are much lower and can even be nothing depending on exemptions, seller income, and filing status.
Are You Exempt From Capital Gains Taxes?
It’s very possible that you won’t have to pay capital gains taxes on your Texas home sale. In fact, many homeowners end up not paying them thanks to exemptions built into the tax code. But how do you know if you qualify? You are allowed to make up to $250,000 in profits when filing individually and up to $500,000 when filing jointly or as head of the household without paying capital gains taxes so long as you meet certain criteria.
First, the house must be your primary residence. Second, you must have been the owner of the house for at least two years. Third, you must have lived in the house for more than two years over the last five years. Finally, you can’t have claimed this exemption on another property within the last two years.
If you meet those requirements, you are unlikely to have to pay capital gains taxes on your Texas home sale if it’s under those amounts. You will still have to pay capital gains on any profits received over those amounts, however. And of course, if you don’t meet all those requirements, you will still have to pay capital gains tax to the IRS.
How Much Are Capital Gains?
If you don’t meet the criteria for an exemption, you’ll have to pay capital gains on your Texas home sale. But what you pay is different depending on each situation and your income level. There are main levels according to the latest IRS requirements that you need to consider.
Even if you don’t meet the exemption, you could still avoid paying capital gains if you make less than $39,375 individually or $78,750 for those married filing jointly or filing as head of household. If that is your income level, you are not required to pay capital gains on your home sale.
The most common capital gains tax rate is 15 percent. This applies to anyone who makes between $39,376 and $434,550 as an individual or between $78,751 and 488,850 for those married filing jointly or as head of household. For example, if you meet these criteria and sell your house for $250,000, you will have to pay capital gains of $37,500.
The most you could be taxed on your Texas home sale is 20 percent. This would apply if you make more than $434,550 for single filers or $488,850 for those filing jointly. In this instance, a $250,000 home sale would trigger a $50,000 capital gains tax payment.
The good news is that because your property sale was in Texas, you won’t have to pay state capital gains on top of whatever you might have to pay to the federal government.
Don’t Forget About Property Taxes
While you still own your house in Texas, you are responsible for property taxes. And unfortunately, Texas is one of the most expensive states when it comes to that. Per WalletHub, Texas homeowners pay an average of $3,327 in real estate taxes, the fifth-highest total in the country and 59 percent higher than the overall average American tax bill.
Know that until you sell your house, you’re going to be responsible for that tax. Those laws may be changing but in the meantime remember to factor that in if your closing takes longer than expected or you’re deciding whether or not to sell your house now. The longer you wait, the more you’re on the hook.
Avoid the Taxes Altogether
Now that you know about the taxes involved when trying to sell your house in Texas, you might want to just not deal with it all. There is an alternative solution where you can sell your house and avoid taxes. You can sell your house as-is directly to a cash buyer like Jamie Buys Houses.
A real estate investor will buy your house in any condition or situation, even if you’re already dealing with tax issues. They’ll review the condition and details around your house and meet you at the property. They’ll handle all the repairs and deal with all the problems so you don’t even need to worry about it. Then, they’ll make you a cash offer based on the value of the house. Even better, there are no fees or taxes you’ll need to deal with beyond that offer. They’ll often even pay the closing costs as well.
If you accept, you set the closing date. Then, all you need to do is sign the contract and get your cash. No taxes to deal with and no extra costs to worry about. You get cash in your pocket and the chance to start fresh with a new home in Texas or elsewhere.