If you are looking to sell your home in Dallas, you’ll want to consider the taxes involved in making a sale. Luckily for you, Texas has no state income tax, which saves you much money right off the bat.
Although federal taxes still apply, you may be exempt from them, depending on some factors. We’ll study the federal tax rate and the exemptions for which you may qualify.
Capital Gain is profit from selling an asset (i.e., property and possessions). For example, if you sell your house for more than you bought it, you have made a capital gain. If you do not qualify for the exemptions covered in this article, you may be required to pay capital gain taxes.
Capital gains are categorized as short-term (owned for one year or less) and long-term (owned longer than one year). Short-term capital gains are included as part of your taxable income and follow the same tax rate.
Long-term capital gains do not follow the same tax rate as short-term gains. Instead, they follow a specific and advantageous tax rate thanks to the Tax Cuts and Jobs Act passed in 2017. The amount you pay in capital gain taxes depends on your income level. You will pay:
- 0%–If you make less than $39,375 individually or $78,750 for those filing a joint return.
- 15%–If you earn between $39,376 and $434,550. Likewise, joint returns that report earnings between $78,751 and 488,850 pay the same.
- 20%–If you make more than $434,550 as an individual or $488,850 for joint returns. This tax is the highest percentage you can be taxed for capital gains.
Although the amount of capital gain taxes depends on the income you make, you can still be exempt from paying any capital gains at all. The tax code allows you to make a profit from your sale up to $250,000 individually or $500,000 for a joint return and pay no capital gains if you meet all these prerequisites:
- You are selling your principal dwelling,
- Having lived in and owned the home for a minimum of two years,
- Have resided in the house for at least two years of the last five years leading up to the sale,
- And have not claimed a capital gains exemption for another property in the last two years.
You must meet all these criteria to receive a tax exemption. If your profit exceeds the $250,000 or $500,000 allowance, you are required to pay taxes for your capital gain.
Thankfully, there is no need to worry about a Texas income tax. However, if you don’t meet the exemptions listed above, you will either pay for short-term or long-term capital gains. Your yearly income determines the amount you pay in taxes.