There is a persistent belief in Dallas that once you turn 65 you can sell your house tax-free. It comes from a rule that was repealed in 1997. What replaced it is more generous for most sellers and a trap for the ones who bought early and stayed.
Seniors in Texas pay no state income tax on a home sale, because Texas has none, but federal capital-gains tax applies at any age. Under IRS Section 121, a seller who owned and lived in the home for two of the last five years can exclude up to $250,000 of gain ($500,000 for a married couple filing jointly). There is no extra exclusion for being over 65. Gain above the exclusion is taxed at long-term capital-gains rates, typically 15% or 20% depending on income.
Is there a special capital-gains break for seniors?
Not anymore. Before 1997, homeowners over 55 got a one-time $125,000 exclusion. The Taxpayer Relief Act of 1997 replaced it with the current Section 121 exclusion, which is available to every age, can be used repeatedly (once every two years), and is larger.
The honest answer to “do I get a senior discount” is no. But the standard rule is better than the old senior rule ever was.
How is the gain on a home sale calculated?
Gain is the sale price, minus selling costs, minus your adjusted basis. Adjusted basis is what you paid plus the cost of capital improvements over the years (a new roof, an addition, a kitchen remodel, a pool), minus any depreciation claimed if part of the home was rented or used for business. The mortgage balance has nothing to do with it.
| Line | Amount |
|---|---|
| Sale price | $950,000 |
| Less commissions and closing costs | −$60,000 |
| Less adjusted basis$210,000 purchase + $90,000 documented improvements | −$300,000 |
| Gain | $590,000 |
| Less Section 121 exclusion, married filing jointly | −$500,000 |
| Taxed at long-term rates | $90,000 |
The improvement records alone were worth $90,000 × 15% = $13,500 in tax. Families who cannot find the receipts pay it.
Where do Dallas sellers over 65 get caught?
Four situations account for most of the surprises Travis-Lee Moore sees as a Seniors Real Estate Specialist in Dallas:
Long tenure
The National Association of Realtors’ 2025 Profile of Home Buyers and Sellers put the typical seller at 64 with 11 years in the home, both records, and in Dallas neighborhoods like Kessler Park, Lakewood and Preston Hollow, thirty-year tenures are common. Appreciation over that span routinely exceeds $500,000.
A spouse’s death
A surviving spouse keeps the full $500,000 exclusion only if the sale closes within two years of the death. After that it drops to $250,000. However, the half of the home owned by the deceased spouse gets a stepped-up basis to date-of-death value under Section 1014, which often shrinks the gain substantially. Both rules matter and a CPA should run both.
Moving into care before selling
The two-of-five-years use test can be a problem if the owner has been in assisted living for a while. The IRS extends the use period for owners who move into a licensed care facility, provided they lived in the home at least one year of the five. Do not assume the exclusion is lost; check.
Renting the home out first
Families sometimes rent the family home for a few years before selling. Depreciation taken during the rental is recaptured at sale, and if the rental period pushes the owner past the use test, the exclusion shrinks or disappears.
Does Texas add any tax when a senior sells?
No. Texas has no state income tax and no state capital-gains tax, and no inheritance or estate tax. The only Texas tax that changes at sale is property tax: a homeowner over 65 loses the school-tax ceiling on the sold home and, if buying another Texas homestead, transfers the ceiling as a percentage to the new one.
Following Proposition 11 in November 2025, the over-65 exemption is $60,000 on top of the $140,000 general homestead exemption on school taxes.
How can a senior seller reduce the tax on a Dallas home sale?
Five levers, in order of how often they help:
- Find the improvement records Every documented dollar raises the basis. Contractor invoices, permits, cancelled checks, even credit-card statements.
- Time the sale around a spouse’s death If that is the situation: within two years for the full exclusion, and always with the stepped-up basis on the deceased spouse’s share.
- Sell in a lower-income year The 0%, 15% and 20% long-term rates depend on total taxable income. A year without a large IRA withdrawal can move a chunk of gain into a lower bracket.
- Consider holding until death If the home would pass to heirs and the seller does not need the proceeds. Heirs receive a full stepped-up basis and the gain disappears. This is a family and estate-planning decision, not just a tax one.
- Do not rent it “for a while” If the plan is to sell, sell.
What should you do before listing?
Get a written broker price opinion from Travis-Lee Moore, pull the purchase documents and improvement records, and sit with a CPA for an hour with all three. The meeting costs a few hundred dollars and, on a long-held Dallas home, regularly saves five figures. Travis-Lee coordinates with the family’s CPA or refers one; the tax conversation happens before the listing agreement, not at closing.
Frequently asked questions
Do I have to buy another house to avoid capital gains?
No. The old “rollover” rule ended in 1997. The Section 121 exclusion applies whether or not you buy again.
Does the $250,000 / $500,000 exclusion apply if I’ve used it before?
Yes, as long as at least two years have passed since the last time you used it and you meet the ownership and use tests.
What is the capital-gains rate for seniors in 2026?
The same as everyone else: 0%, 15% or 20% for long-term gains depending on taxable income, plus a 3.8% net investment income tax for higher incomes. Age is not a factor.
Is the gain taxed if I sell my house and move into assisted living?
Only the gain above the exclusion, and the use test is relaxed for owners in licensed care facilities. Talk to a CPA before assuming either way.
Selling a long-held Dallas home?
Have the tax conversation before the listing agreement
A broker price opinion, your purchase documents and an hour with a CPA. On a long-held Dallas home that hour regularly saves five figures.
Book a call with TravisTravis-Lee Moore, SRES · Cliffside Collective · Compass. (817) 751-4221 · tl@tlfromtx.com. Senior real estate services · When to downsize · Book a call.
This article is general information, not tax advice. Rules and thresholds change; confirm your situation with a CPA or tax attorney.
Travis-Lee Moore · Cliffside Collective · Compass
