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Nearly one-third of Texas homeowners could face a costly surprise when they sell. According to data from the National Association of Realtors®, 32.9% of the state’s homeowners have home equity that exceeds the $250,000 individual federal capital gains exclusion. Another 7.1% go beyond the $500,000 threshold for married couples, making them vulnerable to one of the most overlooked real estate taxes.
The IRS exemption hasn’t changed since 1997. Meanwhile, home prices have surged more than 260% nationally. As appreciation grows, more Texans are finding that their equity comes with a tax bill.
Texas has no state income tax, so residents avoid an extra layer of capital gains penalties. But the federal tax alone can be substantial. For long-term homeowners, it can mean handing over a chunk of their profit to the IRS.
Appreciation that comes with a price
Texas cities like Austin, Dallas, and Houston have seen explosive home price growth over the past two decades. A home bought in the early 2000s for under $200,000 might now sell for $450,000 or more. That’s excellent for wealth-building—but it also pushes more sellers over the IRS’s outdated exclusion.
This has become known as the home equity tax, and it applies when appreciation exceeds federal caps. What was once a tax for high-end properties is now hitting middle-income families.
In response, many homeowners are delaying moves to avoid triggering the tax. Economists refer to this as a “stay-put penalty.” It contributes to low housing inventory and rising home prices across the state.
(Realtor.com)
How Texas Compares in the South
Texas’s 32.9% exposure rate for individuals places it above Arkansas (11.5%) and Louisiana (9.8%) but behind Florida (47.8%). It’s a growing issue for a state once considered affordable and immune to this kind of tax exposure.
At 7.1%, Texas’s rate of homeowners over the $500K exclusion is higher than Mississippi (2.0%) and North Carolina (6.7%), but below Virginia (9.4%). As values continue rising, more Texans may find themselves crossing that threshold.
While the capital gains tax on real estate used to be a problem for luxury sellers, it’s now a concern for average homeowners. And it’s reshaping how—and when—people sell.
The view toward 2035
By 2035, nearly 70% of U.S. homeowners could exceed the $250K cap, and more than 38% could surpass $500K. In Texas, appreciation trends suggest more households will fall into taxable territory unless reforms are passed.
The projected average tax liability for homeowners over the cap could reach $74,708. That’s a major burden for families hoping to use their home equity for retirement, care, or downsizing.
The More Homes on the Market Act proposes doubling the exemptions and tying them to inflation. Supporters argue this would unlock home equity and ease inventory pressures.
Meanwhile, Representative Marjorie Taylor Greene from Georgia, introduced a bill on July 10 that, if passed, would eliminate federal taxes on home sales.
“No more taxing the American dream,” she wrote on X “Families who work hard, build equity, and sell their homes shouldn’t be punished with a massive tax bill.”
Known as the No Tax on Home Sales Act, the bill would eliminate the federal capital gains tax on the sale of primary residences—a measure that the Republican congresswoman said would help homeowners, including those in Texas, struggling with affordability issues and encourage mobility in the U.S. housing market.
This article was produced with editorial input from Dina Sartore-Bodo, Gabriella Iannetta, and Allaire Conte.