Complete Guide to Capital Gains Tax on Home Sales (2026)

What You Will Owe When You Sell: Capital Gains Tax on Home Sales in 2026

The average home that closed in the Austin metro area in 2025 sold for $612,670, according to MLS data compiled by Neuhaus Realty Group. For homeowners who purchased before 2020, that price represents six figures of appreciation, and the IRS wants its cut. Under the Section 121 exclusion, single filers can exclude up to $250,000 in capital gains on a primary residence, while married couples filing jointly can exclude up to $500,000. Beyond those thresholds, federal capital gains tax rates of 15% or 20% apply, plus a potential 3.8% net investment income tax. Texas homeowners catch one break: the state levies zero capital gains tax.

According to the IRS (Publication 523), roughly 85% of homeowners who sell their primary residence owe no capital gains tax at all because their profit falls within the exclusion. But that still leaves millions of sellers, including investors, landlords, and long-time owners of high-appreciation properties, facing a tax bill that can reach tens of thousands of dollars. This guide covers every scenario: selling a primary residence, an investment property, an inherited home, or a home during divorce. It also walks through the strategies (1031 exchanges, installment sales, cost basis adjustments) that legally reduce or defer what you owe.

For a focused breakdown of the Section 121 exclusion alone, see our blog post on how to sell your house and pay zero tax. This guide goes deeper, covering every capital gains scenario a Texas homeowner or investor might encounter.

How Capital Gains Tax Works on Real Estate in 2026

Capital gains tax applies to the profit you make when you sell an asset for more than you paid for it. For real estate, the calculation looks like this:

Sale price minus selling costs (agent commissions, title fees, transfer taxes) minus adjusted cost basis (original purchase price plus capital improvements minus depreciation) equals capital gain.

The type of gain depends on how long you owned the property:

Most home sales qualify for long-term treatment because people own their homes for years, not months. That distinction matters. A couple earning $150,000 in taxable income who realizes a $200,000 long-term capital gain pays 15% ($30,000) in federal tax. If that same gain were short-term, they would owe at their ordinary income rate of 22% to 24%, pushing the bill to $44,000 or higher.

2026 Long-Term Capital Gains Tax Brackets

The IRS adjusts capital gains brackets for inflation annually. Here are the 2026 thresholds, as published by the IRS in October 2025:

One detail that surprises many sellers: these brackets apply to your total taxable income, not just the gain itself. If your salary puts you at $90,000 and you add a $300,000 capital gain on top, you are no longer in the 0% bracket. The gain stacks on top of your ordinary income, potentially pushing part of it into the 20% tier.

The Net Investment Income Tax (NIIT)

High-income sellers face an additional 3.8% surtax on net investment income under Section 1411 of the Internal Revenue Code. This applies to single filers with modified adjusted gross income (MAGI) above $200,000 and married couples filing jointly above $250,000. Capital gains from real estate sales count as net investment income. The NIIT thresholds have not been adjusted for inflation since the tax was introduced in 2013, meaning more middle-income sellers trigger it each year.

For a couple with $280,000 in total income (including a home sale gain), the 3.8% NIIT applies to the lesser of their net investment income or the amount by which their MAGI exceeds $250,000. In that case, the NIIT adds $1,140 to their tax bill on top of the standard capital gains rate.

The Section 121 Exclusion: How to Sell Your Home Tax-Free

Section 121 of the Internal Revenue Code is the single most powerful tax benefit available to homeowners. It allows you to exclude from taxable income up to $250,000 of gain on the sale of your principal residence ($500,000 for married couples filing jointly). No age requirement. No income limit. No requirement to buy another home.

To qualify for the full exclusion, you must meet three tests:

1. Ownership test: You owned the home for at least two of the five years before the sale.
2. Use test: You lived in the home as your primary residence for at least two of the five years before the sale.
3. Frequency test: You have not used the Section 121 exclusion on another home sale within the two years before this sale.

The two years of ownership and two years of use do not need to be consecutive. You could live in a home for 14 months, rent it out for 22 months, move back for 10 months, and sell. As long as 24 months of use fall within the 60-month window, you qualify.

Married Filing Jointly: Getting the Full $500,000

To claim the full $500,000 exclusion, married couples must meet these requirements:

• At least one spouse meets the ownership test (owned the home for 2 of the last 5 years)
• Both spouses meet the use test (both lived in the home as a primary residence for 2 of the last 5 years)
• Neither spouse has used the Section 121 exclusion in the prior two years

If only one spouse meets the use test, the exclusion drops to $250,000. This matters in situations where one spouse moved in after the other had already been living there.

Partial Exclusions for Qualifying Events

If you sell before meeting the full 2-year requirements, you may still qualify for a partial exclusion. The IRS allows a prorated exclusion when the sale is triggered by:

• Change of employment: Your new job is at least 50 miles farther from the home than your old job was.
• Health reasons: A doctor recommends moving for diagnosis, cure, mitigation, or treatment of a disease or illness.
• Unforeseen circumstances: Includes divorce or legal separation, death, natural or man-made disasters, multiple births from the same pregnancy, involuntary conversion of the property, and certain other events specified in IRS regulations.

The partial exclusion is calculated by dividing the number of months you lived in the home by 24, then multiplying by the maximum exclusion ($250,000 or $500,000). If a single homeowner lived in the home for 15 months before a job relocation, the partial exclusion would be 15/24 x $250,000 = $156,250.

The Texas Advantage: No State Capital Gains Tax

Texas is one of nine states with no state income tax, which means no state capital gains tax. This is a significant advantage that many sellers overlook when comparing tax burdens across states.

A California homeowner selling an investment property with a $400,000 gain faces up to $53,200 in state taxes alone, on top of federal taxes. That same sale in Texas? Zero state tax. For investors relocating to Texas before selling appreciated property, this can represent one of the largest single financial benefits of the move. The key requirement is that you must be a Texas resident at the time of the sale. Simply selling property located in Texas while living in a high-tax state does not avoid state taxes in your home state, though it does avoid any tax from Texas.

Ed Neuhaus, broker of Neuhaus Realty Group, notes that relocating buyers from California and New York frequently cite the absence of state capital gains tax as a factor in their decision to move to Texas, particularly investors who plan to sell and reinvest in Austin-area real estate.

Calculating Your Adjusted Cost Basis

Your cost basis is not simply what you paid for the home. The IRS allows you to increase your basis by adding the cost of capital improvements, which directly reduces your taxable gain. The formula:

Adjusted basis = Original purchase price + closing costs paid at purchase + capital improvements over the years of ownership.

Closing costs that can be added to your basis include title insurance, recording fees, survey costs, and transfer taxes. Costs that cannot be added include mortgage interest, homeowners insurance premiums, and property taxes (though property taxes are deductible elsewhere on your return).

Capital Improvements vs. Repairs

The IRS draws a clear line between improvements and repairs. Only improvements add to your cost basis. For a detailed look at which renovations add the most value, see our guide on Austin home renovation ROI in 2026.

Example: How Cost Basis Reduces Your Tax Bill

Consider a couple who bought a home in Austin in 2017 for $350,000. Over eight years, they spent $85,000 on improvements: a kitchen remodel ($42,000), a new HVAC system ($12,000), a pool ($25,000), and a fence ($6,000). Their adjusted basis is $435,000 (plus roughly $8,000 in original closing costs, for $443,000 total).

They sell in 2026 for $650,000, with $38,000 in selling costs (commissions and fees). Their capital gain calculation:

$650,000 (sale price) minus $38,000 (selling costs) minus $443,000 (adjusted basis) = $169,000 capital gain.

Since they are married filing jointly and meet the Section 121 requirements, the full $169,000 is excluded. Zero tax owed. Without tracking those improvements, their gain would have been $254,000, and $4,000 of it would have been taxable (the amount over the $250,000 single exclusion, had they filed singly, or still excluded under the $500,000 joint exclusion). The point: documenting improvements matters most when gains approach or exceed the exclusion threshold.

Selling a Primary Residence: Step-by-Step Tax Calculation

Here is how to calculate your capital gains tax liability when selling your primary residence in Texas:

1. Determine your sale price. This is the contract price, not the list price.
2. Subtract selling costs. Agent commissions (typically 5% to 6% of the sale price in Austin), title fees, excise taxes, staging costs, and repair credits. For a full breakdown, see our seller closing costs guide.
3. Calculate your adjusted basis. Purchase price + purchase closing costs + capital improvements.
4. Compute your gain. Sale price minus selling costs minus adjusted basis.
5. Apply the Section 121 exclusion. Subtract $250,000 (single) or $500,000 (married filing jointly) if you qualify.
6. Determine your tax rate. The remaining gain, if any, is taxed at 0%, 15%, or 20% based on your total taxable income for the year, plus 3.8% NIIT if applicable.

Real-World Scenario: High-Appreciation Austin Home

A single homeowner bought in the Barton Hills neighborhood in 2014 for $320,000. She invested $60,000 in improvements (new roof, bathroom addition, kitchen remodel). Her adjusted basis is $388,000 (including $8,000 in purchase closing costs). She sells in 2026 for $825,000 with $49,500 in selling costs.

Gain: $825,000 minus $49,500 minus $388,000 = $387,500.

After the $250,000 Section 121 exclusion: $137,500 in taxable gain.

At the 15% federal rate (assuming her total income falls in the 15% bracket): $20,625 in federal capital gains tax. In Texas, she owes zero state tax. In California, she would owe an additional $13,750 to $18,288 in state tax on top of the federal amount.

What Happens When You Do Not Qualify for the Section 121 Exclusion

Several situations disqualify a seller from the full exclusion:

• You did not live in the home long enough. Less than 24 months of use in the last 60 months means no full exclusion (but a partial exclusion may apply for qualifying events).
• You used the exclusion recently. If you excluded gain on another home sale within the prior two years, you cannot use it again.
• The home was not your primary residence. Second homes, vacation homes, and investment properties do not qualify for Section 121.
• You are a nonresident alien. The exclusion is generally not available to nonresident aliens.

If none of these exceptions apply and you simply have a gain exceeding the exclusion amount, the excess is taxable. There is no way around it short of the strategies discussed later in this guide (1031 exchange, installment sale, or charitable remainder trust).

Investment Property: Capital Gains Tax Without the Exclusion

Investment properties, including rental homes, vacation rentals, and commercial real estate, do not qualify for the Section 121 exclusion. The entire gain is taxable. But the tax calculation is more complex because of depreciation recapture. For a deep dive on buying and holding investment property in Austin, see our complete investment property guide.

How Depreciation Recapture Works

When you own a rental property, the IRS requires you to depreciate the building (not the land) over 27.5 years for residential property or 39 years for commercial property. This depreciation reduces your taxable rental income each year. But when you sell, the IRS “recaptures” that depreciation at a special tax rate.

Depreciation recapture under Section 1250 is taxed at a maximum federal rate of 25%. This rate applies to the total amount of depreciation you claimed (or could have claimed) during ownership. A critical detail: the IRS assumes you took the depreciation whether you actually did or not. Failing to claim depreciation deductions during your years of ownership does not avoid recapture tax at sale.

Example: Selling an Austin Rental Property

An investor bought a rental home in Cedar Park in 2018 for $300,000. The land was valued at $75,000, making the depreciable building value $225,000. Over eight years, annual straight-line depreciation was $8,182 ($225,000 divided by 27.5), totaling $65,455 in accumulated depreciation.

The investor sells in 2026 for $425,000 with $25,500 in selling costs.

Adjusted basis: $300,000 minus $65,455 depreciation = $234,545.

Total gain: $425,000 minus $25,500 minus $234,545 = $164,955.

The gain is split into two parts:

• Depreciation recapture: $65,455 taxed at 25% = $16,364
• Long-term capital gain: $99,500 taxed at 15% = $14,925

Total federal tax: $31,289. In Texas, no state tax is owed. If the investor’s income exceeds the NIIT threshold, add 3.8% on the full $164,955 gain ($6,268), bringing the total to $37,557.

For investors holding short-term rental properties, our post on bonus depreciation for STR investors covers the additional depreciation strategies that apply to furnished rentals.

The 1031 Exchange: Deferring Capital Gains on Investment Property

Section 1031 of the Internal Revenue Code allows investors to defer capital gains tax entirely by exchanging one investment property for another of equal or greater value. This is the most widely used tax deferral strategy in real estate investing, and it survived intact in the One Big Beautiful Bill Act signed in 2025.

How a 1031 Exchange Works

1. Sell the relinquished property. The sale proceeds go to a qualified intermediary (QI), not to you. You cannot touch the money at any point during the exchange.
2. Identify replacement properties within 45 days. You must formally identify up to three potential replacement properties in writing to your QI within 45 calendar days of closing on the sale.
3. Close on the replacement property within 180 days. The full exchange must be completed within 180 calendar days of the original sale closing.

Both deadlines are firm. No extensions. If you miss the 45-day identification window by even one day, the entire exchange fails and the gain becomes immediately taxable.

Key Rules and Requirements

• Like-kind property only. Since the Tax Cuts and Jobs Act of 2018, only real property qualifies. You cannot exchange a rental house for stocks, equipment, or artwork.
• Equal or greater value. To defer the full gain, the replacement property must be of equal or greater value than the relinquished property. If the replacement costs less, the difference (“boot”) is taxable.
• Qualified intermediary required. You must use a QI to hold the funds. Your real estate agent, attorney, or CPA cannot serve as QI if they have had a financial relationship with you in the prior two years.
• Not available for primary residences. Only properties held for investment or business use qualify. You cannot 1031 exchange your personal home.
• Both properties must be in the U.S.

1031 Exchange Cost Example

An investor sells a rental duplex in Round Rock for $500,000 with a $200,000 gain. Without a 1031 exchange, the federal tax bill would be roughly $30,000 to $47,600 (depending on depreciation recapture and income level). By exchanging into a fourplex in Georgetown for $550,000, the investor defers 100% of the gain. The basis from the old property carries forward to the new one, reducing the depreciable basis but eliminating the immediate tax hit.

QI fees typically range from $800 to $1,500 per exchange. For a detailed look at Austin-area investment opportunities that work well for 1031 exchanges, see our post on investment property in Austin 2026.

What Happens to the Deferred Gain

A 1031 exchange is a deferral, not a forgiveness. The deferred gain reduces the basis of the replacement property, meaning a larger gain when that property is eventually sold. However, many investors chain multiple 1031 exchanges throughout their careers, deferring gains indefinitely. If the property is held until death, the stepped-up basis eliminates the deferred gain entirely for the heirs. This is sometimes called “swap until you drop.”

Installment Sales: Spreading the Tax Bill Over Multiple Years

An installment sale allows you to spread capital gains recognition across multiple tax years by receiving payment over time rather than in a lump sum. This strategy can keep your income in a lower tax bracket each year, reducing the overall tax rate on the gain.

How It Works

Under IRS rules (Section 453), if you receive at least one payment after the end of the tax year in which the sale occurs, you can report the gain proportionally as payments come in. Your recognized gain in any year equals the payment received multiplied by your gross profit percentage.

For example, if your total gain is $300,000 on a $600,000 sale (50% gross profit percentage), and you receive $150,000 per year over four years, you recognize $75,000 in gain each year instead of $300,000 all at once.

Important Limitations

• Depreciation recapture is fully taxable in year one. You cannot spread depreciation recapture across installment payments. The full recapture amount is due in the year of sale.
• Interest must be charged. The IRS requires you to charge at least the applicable federal rate (AFR) on the unpaid balance. The interest you receive is taxed as ordinary income.
• Related party sales are restricted. Selling to a spouse, sibling, parent, child, or entity you control triggers special rules under IRC 453(e) that limit deferral if the related party resells within two years.
• Credit risk. You are extending credit to the buyer. If they default, you may face legal costs to recover the property.

Inherited Property and the Stepped-Up Basis

When you inherit real estate, the cost basis “steps up” to the fair market value at the date of the decedent’s death. This is one of the most valuable tax provisions in the Internal Revenue Code, and it can eliminate decades of accumulated appreciation from capital gains taxation.

For a complete guide on the legal and logistical process of selling an inherited home, see our guide on selling an inherited home in Texas and our blog post on selling inherited and probate homes in Austin.

How the Stepped-Up Basis Works

Your grandmother bought a house in Westlake Hills in 1985 for $120,000. At the time of her death in 2026, the home is worth $1,800,000. If she had sold it herself, she would have faced a capital gain of approximately $1,680,000 (minus improvements and selling costs). But because you inherited the property, your basis is $1,800,000, the fair market value at her death.

If you sell the inherited home for $1,850,000 a few months later, your capital gain is only $50,000 (minus selling costs). The $1,680,000 of appreciation during your grandmother’s lifetime is never taxed to anyone.

Can You Use Section 121 on an Inherited Home?

Yes, but you still need to meet the ownership and use tests. If you inherit a home and move into it as your primary residence for at least two of the next five years, you can apply the Section 121 exclusion to any gain above the stepped-up basis. This is rarely necessary, though, since the stepped-up basis typically eliminates most or all of the gain.

2026 Estate Tax Thresholds

The federal estate tax exemption for 2026 is approximately $15 million per individual ($30 million for married couples). Estates below this threshold owe no federal estate tax. Texas has no state estate tax or inheritance tax. Most inherited homes in the Austin area will not trigger any estate tax at all, making the stepped-up basis a pure benefit with no offsetting estate tax cost.

Selling a Home During Divorce in Texas

Texas is a community property state, which means most property acquired during the marriage belongs equally to both spouses. This has direct capital gains implications when a home is sold during or after divorce. For the full legal and logistical process, see our guide on selling a home during divorce in Texas and our blog post on divorce and real estate in Texas.

Key Tax Scenarios in Divorce

• Selling before the divorce is final. If you sell while still legally married and file a joint return, you can claim the full $500,000 exclusion (assuming both spouses meet the use test).
• Selling after the divorce. Each ex-spouse can exclude up to $250,000 on their share of the gain, provided they individually meet the ownership and use tests.
• One spouse keeps the home. The spouse who keeps the house takes over the original cost basis. If they later sell, their exclusion is limited to $250,000 as a single filer. If the home has appreciated significantly, this can result in a substantial tax bill years down the road.
• Transfers between spouses incident to divorce. Under Section 1041, property transfers between spouses (or ex-spouses within one year of divorce, or related to the divorce decree) are not taxable events. The receiving spouse takes over the transferring spouse’s basis.

The “Use Test” Exception for Divorce

If a divorce decree grants one spouse the right to live in the home, the other spouse is treated as having used the home as their principal residence during that period. This prevents the non-occupying spouse from losing their Section 121 eligibility simply because they moved out as part of the divorce.

Converting a Primary Residence to a Rental (or Vice Versa)

Many Austin homeowners convert their primary residence to a rental when they move, planning to sell later. This triggers complex tax rules.

Primary to Rental

You can still claim the Section 121 exclusion if you sell within three years of moving out (since you need two of the last five years of use). But you must also deal with depreciation. From the date you convert to a rental, you should begin depreciating the property. When you sell, the depreciation taken during the rental period is subject to recapture at 25%, even if the rest of the gain is excluded under Section 121.

Additionally, periods of “nonqualified use” (time after 2008 when the home was not your primary residence) may reduce the available exclusion proportionally. The formula allocates a portion of the gain to nonqualified use based on the ratio of nonqualified-use time to total ownership time.

Rental to Primary

If you move into a rental property and make it your primary residence, you can qualify for the Section 121 exclusion after meeting the two-year use test. However, any depreciation claimed during the rental period is still subject to recapture. This strategy (called “Section 121 conversion”) works best when the gain exceeds the exclusion amount, allowing you to shelter at least $250,000 or $500,000 of it.

Record-Keeping: What to Save and For How Long

The IRS can audit a tax return up to three years after filing (six years if there is a substantial understatement of income). For real estate, keep records for at least three years after the sale. If you use a 1031 exchange, keep records for the life of the replacement property plus three years after its eventual sale.

Documents to keep:

• Purchase records: HUD-1 or closing disclosure from your original purchase, showing the purchase price and closing costs
• Improvement receipts: Invoices, contracts, and proof of payment for all capital improvements. Photos before and after are helpful but not required.
• Depreciation schedules: If the property was ever used as a rental, keep complete depreciation records
• Sale records: Closing disclosure from the sale, showing the sale price, commissions, and all fees
• 1031 exchange documentation: QI agreements, identification letters, and closing documents for both relinquished and replacement properties
• Inheritance documents: Death certificate, estate appraisal showing fair market value at date of death, probate documents

A simple folder system works: keep a physical or digital folder for each property. Add receipts as you go. When you sell, your CPA will assemble the documentation for your tax return.

Common Mistakes That Increase Your Tax Bill

These errors cost sellers thousands of dollars every year:

1. Not tracking capital improvements. The most common mistake. Sellers who cannot document their improvements lose the basis increase and pay tax on a larger gain than necessary.
2. Confusing property tax assessments with market value. Your county tax appraisal (from Travis CAD or Williamson CAD) is not your cost basis or your market value. It is an administrative estimate used for tax purposes only. For more on property tax assessments, see our Austin property tax guide.
3. Not claiming depreciation on rental property. The IRS taxes depreciation recapture whether you claimed it or not. You lose the annual deduction without avoiding the recapture tax.
4. Missing the 45-day 1031 exchange deadline. There are no extensions. Mark the calendar the day you close on the sale.
5. Selling too soon after moving in. Selling before the two-year mark without a qualifying event means losing the Section 121 exclusion entirely.
6. Not considering the NIIT. Sellers focused on the 15% or 20% rate forget the additional 3.8% that kicks in at $200,000/$250,000 MAGI.
7. Filing separately instead of jointly. Married couples who file separately each get only $250,000 of exclusion. Filing jointly doubles the exclusion to $500,000 with no income limit.
8. Ignoring state tax implications. Texas residents owe zero state tax, but if you sell a property in another state while living in Texas, that state may still tax the gain based on the property’s location.

Strategies to Reduce or Defer Capital Gains Tax

Beyond the Section 121 exclusion, several legal strategies can reduce your capital gains tax bill:

Timing Your Sale for Tax Efficiency

If you have flexibility on when to close, consider closing in a year when your other income is lower. A teacher who retires in June and sells in the same calendar year may find that their reduced annual income keeps the entire gain in the 0% or 15% bracket. Conversely, selling in a year when you received a large bonus or exercised stock options can push the gain into the 20% bracket and trigger the NIIT.

This is a conversation to have with your CPA before you list, not after you close.

When to Hire a CPA or Tax Professional

Most primary residence sales where the gain is under $250,000 (single) or $500,000 (married) do not require specialized tax advice. The exclusion is straightforward.

You should consult a CPA or tax attorney before selling if:

• Your gain exceeds the Section 121 exclusion threshold
• You are selling an investment or rental property
• You are considering a 1031 exchange
• You inherited the property
• You are selling during or after a divorce
• You converted the property between personal and rental use
• You are a nonresident selling U.S. property (FIRPTA withholding applies)
• You are considering an installment sale

CPA fees for real estate tax advice typically range from $300 to $1,500 depending on complexity. For a 1031 exchange consultation, expect $500 to $2,000. These fees are almost always worth it when compared to the tax savings they can identify.

According to Neuhaus Realty Group‘s experience advising Austin-area sellers, the most common regret is not consulting a tax professional before listing. Decisions made at the time of sale (pricing, timing, choosing between Section 121 and 1031, structuring installment terms) have permanent tax consequences that cannot be undone after closing.

Selling Costs That Reduce Your Taxable Gain

Selling costs are subtracted from the sale price before calculating your gain. These include:

• Real estate agent commissions (typically 5% to 6% in Austin)
• Title insurance (seller pays the owner’s policy in Texas)
• Escrow and closing fees
• Transfer taxes and recording fees
• Survey costs
• Home warranty provided to the buyer
• Staging costs
• Repair credits negotiated with the buyer

For a complete breakdown of what sellers pay at closing, see our complete guide to seller closing costs in Texas. On a $600,000 home, selling costs typically total $36,000 to $42,000, directly reducing the taxable gain by that amount.

Special Situations

Selling a Home You Owned Before Marriage

If you owned the home before marriage and both you and your spouse lived in it for at least two of the last five years, you can claim the full $500,000 married exclusion on a joint return. The ownership test only needs to be met by one spouse.

Selling a Home After a Spouse’s Death

A surviving spouse can claim the full $500,000 exclusion if the sale occurs within two years of the spouse’s death and the surviving spouse has not remarried. The deceased spouse’s interest receives a stepped-up basis to fair market value at the date of death. In community property states like Texas, both halves of community property receive the step-up, which can significantly increase the surviving spouse’s basis.

Selling a Home Used for Business

If you used part of your home as a home office and claimed depreciation, that depreciated portion is subject to recapture. However, if the office was part of your dwelling unit (not a separate structure), you can still use Section 121 to exclude the gain attributable to the office space. You just cannot exclude the depreciation recapture.

Foreign Sellers and FIRPTA

When a foreign person sells U.S. real estate, the buyer is generally required to withhold 15% of the sale price under the Foreign Investment in Real Property Tax Act (FIRPTA). The seller can apply for a withholding certificate to reduce this amount if the actual tax liability is lower. This is a highly specialized area that requires professional guidance.

Next Steps: Planning Your Home Sale for Tax Efficiency

Capital gains tax is one of the largest financial considerations in any home sale, but it is also one of the most manageable. The Section 121 exclusion shelters most primary residence sales entirely. For investment properties, 1031 exchanges and installment sales provide proven paths to deferral. And in Texas, the absence of state capital gains tax provides a built-in advantage that sellers in most other states do not enjoy.

The key is planning ahead. Talk to your CPA before you list, not after you close. Document every improvement. Understand whether you qualify for the exclusion. If you are selling investment property, start conversations with a qualified intermediary early enough to meet the strict 1031 exchange deadlines.

For personalized guidance on how capital gains tax applies to your specific situation in the Austin and Hill Country market, contact Neuhaus Realty Group. For a broader look at the selling process, start with our complete guide to selling your home in Austin.