Texas Capital Gains On Inherited Property Calculator

If you’ve inherited property in Texas and are considering selling it, you’re in a unique tax situation that differs from other states.

While Texas doesn’t impose state income or capital gains taxes (a significant advantage!), you still need to understand the federal tax implications when selling inherited real estate.

Our Texas-specific calculator helps you estimate the potential federal capital gains tax on your inherited property by accounting for:

• The stepped-up basis (property value at the time you inherited it)
• Texas-specific considerations like high real estate commissions (typically 6%)
• Property improvements you’ve made since inheritance
• Federal government tax brackets that apply to your situation
• Special exemptions like the primary residence exclusion
• 1031 exchange opportunities popular among Texas real estate investors

Simply enter your information below to get an accurate estimate of your federal tax obligations and explore tax-saving strategies specifically for Texas property owners.

How Our Inherited Property Tax Calculator Works

Our capital gains tax calculator provides a personalized estimate of federal capital gains taxes on inherited Texas property by calculating:

1. Texas-Specific Stepped-Up Basis:

Unlike property you purchase yourself, inherited property in Texas receives a “stepped-up basis” to the fair market value at the the previous owner’s date of death. According to IRS Publication 544 on Sales and Other Dispositions of Assets, this often significantly reduces or eliminates capital gains tax, especially for long-held family properties.

2. Federal Capital Gains Tax Only:

One major benefit of inheriting property in Texas is that there is no state income tax or capital gains tax, as confirmed by the Texas Comptroller of Public Accounts. You’ll only need to consider federal capital gains tax, which can range from 0% to 20% depending on your ordinary income level and filing status, as outlined in the IRS Topic No. 409 on Capital Gains and Losses.

3. Texas-Specific Selling Costs:

Our capital gains tax calculator accounts for Texas real estate commissions (typically 6-7% in Texas according to the Texas Real Estate Commission) and closing costs, which reduce your taxable gain.

4. Primary Residence Exemption in Texas:

If you’ve used the inherited property as your primary residence for at least 2 years, you may qualify for an exemption of up to $250,000 ($500,000 for married couples) on capital gains. This valuable tax break is detailed in Internal Revenue Code Publication 523: Selling Your Home.

5. 1031 Exchange Opportunities:

Texas has a wide-ranging real estate market making 1031 exchanges a popular strategy for deferring capital gains taxes by reinvesting in another property. The IRS guide on Like-Kind Exchanges provides the official requirements for this tax-deferral strategy.

This capital gains calculator uses up-to-date 2025 federal tax rates while accounting for the unique advantages of Texas’s no-state-tax status.

Texas Inheritance Tax Facts

Texas offers significant tax advantages for those inheriting property compared to many other states:

No Texas State Inheritance or Estate Tax:

Texas is one of the states with no inheritance tax and no estate tax at the state level, as verified by USA.gov’s Property Inheritance Laws resource. This is a major advantage compared to other tax jurisdictions in the United States like Pennsylvania, New York, New Jersey, Nebraska, and New Hampshire that impose inheritance taxes up to 16%.

No Texas State Capital Gains Tax:

When you sell inherited property in Texas, you won’t pay any state capital gains tax. According to the Tax Foundation’s State Individual Income Tax Rates comparison, this is a significant advantage over high-tax states like California where combined state and federal rates can exceed 37%.

Federal Capital Gains Tax Still Applies:

Although Texas doesn’t tax capital gains, federal estate tax still applies when selling inherited property for more than its stepped-up basis (the value at the time of inheritance). The federal long-term capital gains tax rates for 2025 are:

• 0% (income up to $44,625 for single filers, $89,250 for married filing jointly)
• 15% (income up to $492,300 for single filers, $553,850 for married filing jointly)
• 20% (income above those thresholds)

Net Investment Income Tax (NIIT)

High-income sellers may also face an additional 3.8% Net Investment Income Tax on gains above certain thresholds ($200,000 for single filers, $250,000 for married filing jointly). This tax is part of the federal tax structure explained in Investopedia’s guide to stepped-up basis.

Smart Tax Strategies for Texas Inherited Property

1. Understand Your Stepped-Up Basis

When you inherit property in Texas, you receive a “stepped-up basis” equal to the fair market value of the property at the time of the previous owner’s death. According to this guide on capital gains for inherited property, this can significantly reduce or even eliminate your capital gains tax liability.

For example, if your parent purchased a home for $150,000 that was worth $450,000 when they passed away, your basis would be $450,000. If you sell for $460,000, you’d only pay taxes on capital gains on $10,000 rather than the $310,000 increase from the original purchase price.

2. Take Advantage of the Primary Residence Exclusion

If you’ve lived in the inherited property as your primary residence for at least two of the five years before selling, you may qualify to exclude up to $250,000 of gain ($500,000 for married couples filing jointly) from your income.

3. Consider a 1031 Exchange

Texas investors often use 1031 exchanges to defer capital gains taxes by reinvesting the proceeds into another “like-kind” investment property. The Texas A&M Real Estate Center provides research showing this strategy is particularly effective in Texas’s growing real estate markets.

4. Document Home Improvements

Any capital improvements you make to the inherited property after you inherit it will increase your basis, reducing your taxable gain. Keep detailed records of all improvements, from kitchen renovations to roof replacements.

5. Seek Professional Guidance

The Texas Bar Association’s Estate Planning Section can help connect you with qualified tax attorneys who specialize in inheritance issues. Complex situations involving multiple heirs or significant assets often benefit from professional guidance.

Frequently Asked Questions

How is the stepped-up basis determined for Texas inherited property?

In Texas, the stepped-up basis is generally the fair market value of the property on the date of the deceased person and previous owner. Most heirs obtain a professional appraisal to establish this value, which becomes the new basis for calculating future capital gains.

Do I need to report the inheritance of Texas property to the IRS?

Generally, receiving an inheritance is not considered taxable income, so you don’t need to report the property itself on your federal income tax return. However, any ordinary income generated by the inherited property (like rental income) must be reported.

Can I avoid capital gains tax if I sell a Texas inherited property immediately?

If you sell immediately after inheriting, there’s typically little to no capital gain because the sales price will be close to the stepped-up basis. This makes a quick home sale one of the most tax-efficient options for Texas inherited property.

What if I inherit property with a mortgage in Texas?

When you inherit property with a mortgage in Texas, you also inherit the debt to mortgage lenders. However, the stepped-up basis rule still applies to the full fair market value of the property, not just the equity portion. This can significantly impact your tax situation if you decide to sell.

How do property taxes work for inherited property in Texas?

While Texas has no inheritance tax, it does have relatively high property taxes. As the new owner, you’ll be responsible for annual property taxes, and any homestead exemptions the previous owner had will need to be reapplied for in your name. Contact your local county appraisal district for specific guidance.

Disclaimer: This content is for informational purposes only and should not be considered legal, financial, or tax advice. Calculations are based on general federal tax guidelines and may not reflect your specific situation. Before making decisions involving selling price, gross equity, or real property, consult a licensed tax professional or financial advisor. Individual outcomes may vary due to changing tax laws, gross income, and unique asset types such as retirement accounts, credit cards, or a vacation home. If your situation involves a rental property, capital asset, or part of a taxable estate, we strongly recommend speaking with a CPA familiar with federal inheritance tax and short-term capital gains tax obligations.