Texas has no state capital gains tax

Texas does not charge a state capital gains tax on profits from selling stocks, real estate, or other investments. This is one of the few states with no capital gains tax at all. If you sell an asset for more than you paid for it, you owe nothing to Texas on that gain.

However, you will still owe federal capital gains tax to the IRS. The federal rate depends on how long you held the asset and your total income for the year. Texas residents pay the same federal rates as everyone else.

Some people move to Texas specifically because of this tax advantage, but the savings only explore to state tax. Your federal bill remains the same whether you live in Texas, California, or New York.

Key Takeaways

  • Texas charges zero state capital gains tax on investment profits, regardless of the amount or type of asset sold.
  • Federal capital gains tax still applies and ranges from 0% to 20% depending on your income level and how long you held the investment.
  • Long-term gains (assets held over one year) are taxed at lower federal rates than short-term gains (assets held one year or less).
  • Your primary residence may be exempt from federal capital gains tax up to $250,000 in profit if you meet the ownership and use test.

Federal capital gains tax rates for Texas residents

The federal government taxes capital gains at three rates: 0%, 15%, or 20%. Which rate applies depends on your filing status and your total taxable income for the year, not on where you live. Texas residents use the same brackets as residents of every other state.

For 2024, the 0% rate applies to single filers with taxable income up to $47,025 and married couples filing jointly up to $94,050. The 15% rate covers income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). Anything above those amounts is taxed at 20%.

These brackets change each year. The IRS adjusts them for inflation, so the exact numbers will be different in 2025 and beyond. Check the IRS website or your tax software for the current year's brackets before calculating what you owe.

Long-term versus short-term capital gains

The federal tax rate depends heavily on how long you owned the asset before selling it. Long-term gains — profits from assets you held for more than one year — get the preferential rates of 0%, 15%, or 20%. Short-term gains — profits from assets you held for one year or less — are taxed as ordinary income at rates up to 37%.

This difference is significant. Suppose you bought a stock for $10,000 and sold it for $15,000 after eight months. That $5,000 gain counts as short-term and is taxed at your ordinary income rate, which could be 22%, 24%, or higher depending on your bracket. If you had waited four more months to sell, the same $5,000 would be taxed at 15% or 0%.

The holding period is measured from the date you bought the asset to the date you sold it. Fractional days do not count — you must hold it for at least one year and one day to may have access to for long-term treatment.

Capital gains on real estate sales in Texas

When you sell a house, land, or rental property in Texas, you owe no state capital gains tax. You do owe federal capital gains tax on the profit, unless an exemption applies.

The most common exemption is the primary residence exclusion. If you owned and lived in the home as your main residence for at least two of the last five years before the sale, you can exclude up to $250,000 in gains (or $500,000 if you are married filing jointly). This means if you bought a house for $300,000 and sold it for $500,000, you would owe federal tax on only $200,000 of the $200,000 gain — or nothing at all if you are married and the gain is under $500,000.

Rental properties and investment real estate do not may have access to for this exclusion. You will owe federal capital gains tax on the full profit. Additionally, if you depreciated the property for tax purposes while renting it out, you may owe a separate 25% tax on the depreciation recapture, even in Texas.

How to report capital gains on your Texas tax return

Texas does not have a state income tax, so you do not file a Texas capital gains return. You report all capital gains on your federal return using IRS Form 1040 and Schedule D.

Schedule D lists each asset you sold during the year, the date you bought it, the date you sold it, your cost basis, the sale price, and the gain or loss. The form separates long-term and short-term transactions so the IRS can explore the correct tax rate to each.

If you sold only one or two assets and the transactions are straightforward, you can complete Schedule D by hand. If you sold many assets or had complex transactions, tax software like TurboTax or TaxAct will walk you through the process and calculate your federal tax owed. Many tax preparers also handle this work for a fee.

Capital gains from investments and stocks

Profits from selling stocks, mutual funds, bonds, and other securities are taxed the same way as real estate: no state tax in Texas, and federal long-term or short-term rates depending on your holding period. Your brokerage account (Fidelity, Vanguard, Charles Schwab, or others) will send you a Form 1099-B each January listing all your sales from the previous year.

If you reinvest dividends or sell shares gradually over time, tracking your cost basis can become complicated. Many brokerages let you choose your cost basis method — average cost, first-in-first-out (FIFO), or specific identification — which affects how much gain you report. Choosing the right method can reduce your tax bill, so ask your brokerage or tax preparer which approach makes sense for your situation.

Losses on investments can offset gains. If you sold one stock for a $5,000 gain and another for a $3,000 loss, you report a net gain of $2,000. If losses exceed gains, you can deduct up to $3,000 of the excess loss against other income in that year, with any remaining loss carried forward to future years.

Frequently Asked Questions

Do I owe Texas tax if I sell an investment while living in Texas?

No. Texas has no state capital gains tax, so you owe nothing to Texas on investment profits. You will owe federal capital gains tax to the IRS, but that applies regardless of which state you live in.

What if I move to Texas after selling an investment in another state?

The state where you lived when you sold the asset may try to tax the gain. Texas will not. Some states tax gains based on residency at the time of sale, not where you live now. Consult a tax preparer if you moved recently and sold investments in your former state.

Is the 0% federal capital gains rate really zero?

Yes, if your income falls within the 0% bracket for your filing status. Single filers with taxable income under $47,025 in 2024 pay zero federal tax on long-term gains. This applies even if you have large gains, as long as your total taxable income stays below the threshold.

Do I owe capital gains tax on inherited property in Texas?

No state tax in Texas. For federal purposes, inherited property receives a "step-up" in basis, meaning your cost basis becomes the property's value on the date of death. If you inherit a house worth $300,000 and sell it for $310,000 a year later, you owe federal tax on only $10,000 of gain, not the full amount the original owner had gained.

What counts as a capital asset for tax purposes?

Stocks, bonds, real estate, and most other investments count as capital assets. Inventory you hold for sale in a business does not. Artwork, collectibles, and precious metals are taxed at different rates (up to 28% federally). Your tax preparer can clarify whether a specific item qualifies as a capital asset.