Capital gains tax when you sell land in Texas

What taxes you pay when you sell land in Texas

• State income or capital gains tax: none. The Texas Constitution bars a tax on individuals' net income (Article VIII, Section 24-a). Since November 2025, it also bars any tax on an individual's realized or unrealized capital gains (Section 24-b).
• Transfer tax: none. Article VIII, Section 29 bars new transfer taxes on sales of real property.
• Federal capital gains tax: possibly. If you sell for more than your adjusted basis, the profit is a capital gain.
• Net investment income tax: for higher incomes. An extra 3.8% can apply on top.
• Property taxes: your share for the year. They're prorated at closing. If the land has an agricultural valuation and the use changes, a rollback tax can also be due. Our guide to selling land with an ag exemption explains who pays it.

How the IRS figures your gain

The formula is short: amount realized, minus adjusted basis, equals your gain.

Amount realized is the sale price less your selling expenses, such as the commission and the closing costs you pay.

Adjusted basis starts with what you paid for the land. IRS Publication 551 lets you add:

• closing costs from your purchase, such as legal fees, recording fees, surveys and the owner's title policy;
• amounts the seller owed that you agreed to pay when you bought, such as back taxes;
• improvements, such as extending utility lines, assessments for local improvements like roads or ditches, zoning costs and legal fees to defend or perfect your title.

Dig out your original closing statement and receipts now. Every documented dollar of basis is a dollar of gain you don't pay tax on.

Federal capital gains rates for 2026

Land you've held for more than one year produces a long-term gain, taxed at 0%, 15% or 20% depending on your taxable income. Held one year or less, the gain is short-term and taxed like wages, at ordinary rates that reach 37%. You count the holding period from the day after you acquired the land.

These are the 2026 thresholds from IRS Revenue Procedure 2025-32, and they adjust every year. Your gain sits on top of your other income, so part of it can fall in one band and part in the next.

Net investment income tax. If your modified adjusted gross income is over $200,000 (single) or $250,000 (married filing jointly), an extra 3.8% applies to the smaller of your net investment income or the amount you're over the threshold. Gains from selling investment real estate count (IRS Topic 559).

What the tax looks like on a real sale

Change one fact and the answer changes a lot. If the same seller had inherited the land when it was worth $185,000, the basis would be $185,000 and the gain only $3,000. If they'd owned it for 11 months, the gain would be taxed at ordinary income rates instead.

Inherited or gifted land

• Inherited land generally takes a basis equal to its fair market value on the date of death (IRS Publication 551), and the IRS treats it as held long term however soon you sell (Publication 544). Texas is a community property state. When a married owner dies, both halves of community property generally get the new basis, including the surviving spouse's half. A date-of-death appraisal is your best evidence. Our guide to selling inherited land in Texas covers the title side.
• Gifted land usually keeps the giver's basis. If your parents gave you land they bought decades ago for little, your basis for figuring gain is generally their old basis, not today's value.

That gap between gifted and inherited land is why families with old, low-basis land should see a tax professional before a parent deeds it to a child.

Legal ways to reduce or defer the tax

1. Hold it more than a year. Long-term rates are well below ordinary rates.
2. Document your full basis, including purchase costs and improvements.
3. Time the sale. In a year when your income drops, for example after you retire, more of the gain may fall in the 0% band.
4. Take payments over time with an installment sale, so the gain is taxed as you're paid.
5. Exchange into other real estate with a 1031 exchange, and defer the whole gain.

If you sell investment land for less than your basis, the result is a capital loss. It offsets capital gains, and up to $3,000 a year of any excess loss ($1,500 if married filing separately) can offset other income, with the rest carried forward (IRS Topic 409).

1031 exchanges with raw land

Section 1031 lets you trade real property held for investment or used in a business for other such real property without paying tax on the gain now. The IRS says real properties are generally like-kind whether they're improved or unimproved, so raw land can be exchanged for other land, a rental property or a commercial building.

The rules are strict:

• The land must be held for investment or business use. Property held primarily for sale doesn't qualify.
• You must identify replacement property in writing within 45 days after you transfer your land, and receive it within 180 days or by your tax return due date (with extensions), whichever comes first.
• You can't receive the sale money, or have it made available to you. The usual safe harbor is a qualified intermediary who holds the funds. Your own agent or a related person can't serve.
• Any cash or other property you take out of the exchange is taxable. Real property outside the United States isn't like-kind to Texas land.
• You report the exchange on Form 8824.

Set the exchange up before closing. Once the title company pays the proceeds to you, it's too late.

Installment sales and owner financing

If you finance the sale yourself and receive at least one payment after the year of sale, the IRS requires the installment method unless you elect out (IRS Topic 705). Each year you report only the part of each payment that's gain, on Form 6252. The part that's a return of your basis isn't taxed. Interest the buyer pays is ordinary income, and the note needs adequate stated interest, measured against the IRS applicable federal rate, or part of the principal can be treated as interest.

The installment method isn't available for sales of inventory. For the practical side of carrying a note, see our guide to owner financing land in Texas.

When a land sale is taxed as ordinary income

Capital gain treatment depends on why you held the land. Property held mainly for sale to customers in a business isn't a capital asset (IRS Publication 544). If you subdivide a tract into lots to sell, the IRS says the gain is normally ordinary income, though Section 1237 can give capital gain treatment on part of it if you meet its requirements. Someone selling a single inherited tract or a long-held investment usually isn't in that position. If you buy and sell land regularly, or plan to plat and sell lots, get advice before you start.

The home sale exclusion rarely covers vacant land

The $250,000 exclusion ($500,000 for many married couples) applies to your main home. Vacant land generally doesn't qualify. The exception is land next to your home that you owned and used as part of your home, sold within two years before or after the home itself, where both sales meet the usual tests. Then the two sales count as one, with a single exclusion limit (IRS Publication 523).

Reporting the sale

The title company or other settlement agent generally files Form 1099-S with the IRS, showing your gross sale price. That's the price, not your gain, so you report the sale and your basis on Form 8949 and Schedule D. A large gain can also mean you need to make estimated tax payments.

Tax rules have exceptions a guide can't cover, so run the numbers with a CPA or tax professional before you sign a contract, especially if you're considering a 1031 exchange. For the other costs of selling, see our guide to what it costs to sell land in Texas.

Whoever buys your land, whether an individual, a builder or a land company like ours, the tax math is the same. If you'd like a price to plug into it, tell us about your land and we'll get back to you within 24 hours.