Selling a Rental With Tenants in Texas

In most Texas sales, the buyer takes the property subject to the existing lease — the new owner becomes the landlord and is generally expected to honor the lease’s remaining term, rent amount, and conditions. A sale by itself is not grounds to remove a tenant before their lease ends; only specific circumstances, like a completed foreclosure with particular federal notice rules, work differently.

If the tenant is month-to-month rather than under a fixed lease, either party can generally end the tenancy with at least 30 days’ written notice. Either way, removing a tenant who has not agreed to leave still requires a formal eviction process through the courts — a sale does not let a new owner change the locks.

The security deposit is generally the new owner’s responsibility once the sale closes, and it should be addressed explicitly in the purchase contract and at closing — either transferred to the buyer or otherwise accounted for in writing. Tenants are still entitled to a refund (or an itemized, written reason for withholding it) at move-out under Texas law, so an unclear handoff of the deposit is a common source of disputes after closing.

Selling with tenants in place, rather than after they vacate, can also mean showings and inspections happen around their schedule — coordinate access in writing rather than assuming a tenant will accommodate short-notice showings.

A rental property does not qualify for the primary-residence gain exclusion under IRC §121 the way a home you have lived in does. Instead, any depreciation you deducted while renting the property is generally recaptured and taxed at sale, up to a 25% rate on that portion of the gain (unrecaptured Section 1250 gain), on top of ordinary capital gains treatment on the rest — and an additional 3.8% Net Investment Income Tax can apply depending on your income.

Some investors use a 1031 like-kind exchange to defer this tax by rolling proceeds into another investment property, but the rules involve strict deadlines and are easy to get wrong. Talk with a CPA or 1031-qualified intermediary before you close if deferring the tax is something you want to explore — once the sale closes without one in place, that option is generally gone.