Do You Owe Capital Gains Tax When You Sell Your Home in Preston Hollow?
If you're single, you can exclude up to $250,000 of profit from the sale of your primary home from capital gains tax — $500,000 if you're married filing jointly — as long as you owned and lived in the home for at least two of the last five years. Anything above that exclusion is taxed as a capital gain. In Preston Hollow, where the median sale price now sits near $2.52 million, a lot of sellers with strong appreciation clear that threshold and owe tax on the difference.
By Brandon Travelstead | September 21, 2026
This is one of the most common questions I get from sellers in Preston Hollow, Prestonwood, and Bent Tree right now, and it's usually asked with some anxiety attached. The good news: most homeowners in this price range still come out ahead of the exclusion, or close to it. The number that matters is your gain, not your sale price — and those are two very different things.
The exclusion, in plain terms:
You must have owned the home for at least 24 months out of the 5 years before you sell it.
You must have used it as your primary residence for at least 24 months out of that same 5-year window (the two periods don't have to overlap).
Meet both tests, and you exclude up to $250,000 of gain if you file single, or $500,000 if you file jointly.
Gain above that amount is taxed at long-term capital gains rates, and depending on your income, you may also owe the 3.8% net investment income tax on top of it.
Your CPA is the right person to confirm your exact rate and liability — I'm not a tax advisor, and this isn't tax advice. But I can walk you through how the gain itself gets calculated, because that's where most sellers are surprised.
Gain isn't your sale price. It's what's left after your basis and selling costs.
Here's the actual formula:
Sale price − selling costs − adjusted basis = taxable gain (before the exclusion)
Your adjusted basis isn't just what you paid for the house. It's your original purchase price, plus the cost of capital improvements over the years — a new roof, a kitchen remodel, an addition, a pool. Routine maintenance doesn't count, but real improvements do, and they directly reduce your taxable gain. If you've been in your home a while and made meaningful upgrades, dig up those receipts before you list. They're worth real money at tax time.
Selling costs count too. In Texas, sellers typically pay 8–10% of the sale price in total closing costs — real estate commissions (now negotiated per deal following the 2024 NAR settlement), the buyer's owner's title insurance policy (which sellers customarily cover here), prorated property taxes, and recording fees. Texas has no state transfer tax, which helps, but commissions and title costs still come off the top before you ever get to your gain calculation.
A quick example:
Say you bought your Preston Hollow home in 2014 for $950,000, put $150,000 into a kitchen and primary suite remodel over the years, and you're selling today for $2.4 million with about $180,000 in selling costs.
Adjusted basis: $950,000 + $150,000 = $1,100,000
Gain before exclusion: $2,400,000 − $180,000 − $1,100,000 = $1,120,000
After the $500,000 married exclusion: $620,000 taxed as a capital gain
That's a very different number than the $2.4 million headline price — and it's the number that actually matters when you're deciding whether this is the year to sell.
A few ways sellers in this range manage their exposure:
Track and document every capital improvement — this is the single biggest lever most people underuse.
If you and your spouse haven't both met the two-year use test (say, after a move for work or a health situation), you may still qualify for a partial exclusion under IRS "unforeseen circumstances" rules.
If the property has been a rental or second home rather than your primary residence, the calculation changes entirely, and a 1031 exchange may be worth exploring instead — that's a conversation for your CPA and me together, before you list, not after.
None of this replaces a real conversation about your specific number.
Your basis, your improvements, your filing status, and current market pricing for your home all factor into what you'd actually net and owe. That's exactly the kind of math I walk sellers through before we even talk about listing.
Frequently Asked Questions
What is the capital gains exclusion for a home sale?
You can exclude up to $250,000 of gain from the sale of your primary residence if you're single, or $500,000 if you're married filing jointly, as long as you meet the two-year ownership and use tests within the five years before the sale.
Do I automatically get the full $500,000 exclusion if I'm married?
Only if both spouses meet the ownership and use tests and you file a joint return. If only one spouse meets the tests, the exclusion is typically limited to $250,000.
What if I've only owned my home for one year?
You likely won't qualify for the full exclusion unless you meet an exception for a job change, health issue, or other unforeseen circumstance recognized by the IRS, in which case a partial exclusion may apply. Talk to your CPA before you list if this applies to you.
Does Texas charge its own capital gains tax on home sales?
No. Texas has no state income tax and no state-level capital gains tax, so any tax owed on gain above the federal exclusion is federal only.
What's the easiest way to reduce my taxable gain before selling?
Document every capital improvement you've made — remodels, additions, major systems replacements — since they increase your cost basis and directly reduce the portion of your gain that's taxable.
If you're weighing whether now is the right time to list, let's talk it through — no pressure, just a clear picture of where you stand. Reach out for a private, no-pressure listing consultation and I'll walk you through your specific numbers.
About Brandon Travelstead
Brandon Travelstead is a top 2% producing Compass agent with 16 years of experience in the Dallas market, specializing in North Dallas neighborhoods like Preston Hollow, Prestonwood, and Northwood Hills, as well as Lakewood and Lake Highlands. He works with sellers preparing to list and buyers relocating to or within Dallas, with a particular focus on infill new construction and custom-built homes. Brandon's business runs almost entirely on referrals — a track record built on getting high-stakes transactions right.
Brandon Travelstead is a real estate agent affiliated with Compass Real Estate.
