Selling a Rental Property in Texas: What Landlords Need to Know

Selling a Texas rental property is more complicated than selling a primary residence — you have tenants, depreciation recapture taxes, and potential 1031 exchange decisions to navigate. Here's what to know before you list.

Tenant Rights in Texas During a Sale

Texas law requires landlords to honor existing leases through their term. If tenants are month-to-month, you can give 30 days' notice to vacate (some leases require 60). If they're on a fixed-term lease, a buyer must purchase subject to that lease. Always review your lease before listing — some leases include termination clauses upon sale.

Selling Occupied vs. Vacant

Selling occupied (with tenants) limits your buyer pool to investors willing to take over the lease. Selling vacant opens the property to owner-occupants and expands demand, often yielding a higher price. Cash buyers routinely buy occupied rentals — it's a non-issue for investors.

Capital Gains and Depreciation Recapture

Unlike a primary residence, rental properties don't get the $250K/$500K capital gains exclusion. You'll owe long-term capital gains tax (15–20%) on appreciation plus a 25% depreciation recapture tax on all depreciation you've claimed. Consult a CPA before closing — these numbers can be significant.

1031 Exchange: Defer the Tax

A 1031 exchange lets you defer capital gains and depreciation recapture taxes by reinvesting proceeds into another investment property. You must identify the replacement property within 45 days of closing and close on it within 180 days. You cannot touch the proceeds — a qualified intermediary holds them. This is the most common tax strategy for landlords who want to keep investing.

Selling to a Cash Buyer With Tenants

Cash buyers buy occupied rentals regularly. They close without requiring tenant cooperation, inspections, or lender appraisals. Tenants don't need to leave for showings. This is often the simplest path when tenant relationships are difficult or you don't want to disrupt an occupied property.

Should You Sell or Keep Renting?

Run the numbers: current net rent vs. projected appreciation vs. alternative returns on the equity you'd free up. In many DFW markets, properties that cashflowed well in 2018 are now barely breaking even with increased insurance and property taxes. Equity sitting in a flat-returning asset may serve you better elsewhere.

Frequently Asked Questions

Related reading: 1031 exchange in Texas · depreciation recapture · Texas tenant rights when selling