Tax Guides

Capital Gains On Investment Property Explained

Investment property covers a broad category that includes commercial buildings, raw land, industrial facilities, and multifamily assets held for business or investment purposes rather than personal use, and each carries similar general federal capital gains exposure when sold in Dallas, TX. Gain is generally the sale price less selling costs and adjusted basis, taxed at long term capital gains rates of up to twenty percent for property held more than one year, with an additional three point eight percent net investment income tax often applying above certain income thresholds. Depreciable improvements, such as buildings and site improvements, generally create unrecaptured Section 1250 recapture exposure taxed at a maximum federal rate of twenty five percent, while raw land without depreciable improvements generally does not carry a recapture component. Because Texas has no state income tax, the total tax burden on an investment property sale in North Texas is generally limited to these federal layers. Investors can generally defer gain recognition on a qualifying investment property sale through a like kind exchange under Section 1031, provided the replacement property is also held for investment or business use and the exchange is structured through a qualified intermediary. Alternatively, an installment sale under Section 453 can spread gain recognition over the payment period rather than eliminating it, and cost segregation studies on the replacement property can accelerate future depreciation. This page is general education and not a substitute for a projection specific to a given asset class and basis.