Texas Real Estate Sale: Capital Gains Tax Explained

The simplest tax story in this entire cluster — there's no state tax line to calculate at all, ever.

No Texas income tax; IRC § 1014

Quick answer: zero Texas state tax — the state has no income tax at all. Only federal capital gains tax applies, and the stepped-up basis usually keeps that base small too. See the full cost picture in the Texas probate real estate sale calculator.

No state income tax, period

Straight from how Texas is built: Texas has no state estate or inheritance tax, and more fundamentally, no state income tax at all — so a capital gain from selling an inherited house never generates a Texas state tax bill, regardless of how large the gain is.

Only the federal side to plan for

Federal capital gains tax still applies, but under IRC § 1014, an inherited house's basis resets to its fair market value on the date of death — sell soon after death, near that same value, and the taxable gain is small or zero even at the federal level.

Selling costs reduce the federal gain

Agent commissions, closing costs, and property preparation costs incurred in connection with the sale reduce the capital gain (or increase the capital loss) on the federal return — worth tracking carefully even though Texas itself has no equivalent state deduction to claim.

Watch the homestead exemption's expiration

If the house carried a homestead exemption, it expires at the end of the year of death, or whenever the property stops being used as a homestead. The new property tax bill without that exemption can be significantly higher — a real cost during the estate period, even though it isn't a capital gains issue.

No estate or inheritance tax either

Texas has no state estate tax, and its state inheritance tax was repealed effective September 2015. Only the federal estate tax applies, and only to very large estates.

Facing probate in Texas?

A local probate attorney can review your estate — many offer a free consultation.

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The absence of state income tax applies identically whether the sale closes in Harris, Dallas, Travis, or any other Texas county — there's no local income tax layered on top anywhere in the state.

Capital gains tax on the sale — frequently asked questions

Does Texas tax the gain from selling an inherited house?

No — Texas has no state income tax at all, so there's no state-level tax on any capital gain. Only the federal capital gains tax can apply, and typically on a small base thanks to the stepped-up basis.

What is the stepped-up basis on an inherited Texas house?

The house's federal tax basis resets to its fair market value on the date of death, so only appreciation after that date is taxable — selling soon after death, near that same value, typically produces a small or zero federal taxable gain.

Does Texas have an estate tax or inheritance tax on top of this?

No — Texas has no state estate tax, and its state inheritance tax was repealed effective September 2015. Only the federal estate tax applies, and only to very large estates.

What happens to the homestead exemption after the owner's death?

It expires at the end of the year of death, or whenever the property stops being used as a homestead — the new property tax bill without that exemption can be significantly higher, worth budgeting for during the estate period.

Are selling costs deductible from the taxable gain in Texas?

Yes, at the federal level — agent commissions, closing costs, and property preparation costs incurred in connection with the sale reduce the capital gain, or increase the capital loss, on the federal return.

This page provides general guidance only and is not legal, tax, or financial advice. Based on Texas having no state income tax and federal Internal Revenue Code § 1014. Confirm current figures with the IRS, a CPA, or a licensed Texas attorney before acting.