Texas has no state income tax, so when you sell appreciated real estate the only tax is federal — but that federal bill is still 23.8% on the gain. A 1031 exchange into a Delaware Statutory Trust lets Texas investors defer that federal tax, move from active management to passive institutional real estate, and keep their full equity working.
23.8%Est. combined tax if you sell
0%Top state rate on gains
5.5–7.0% multifamilyIllustrative cap rates
How Texas taxes a property sale
State treatment. No state income tax — capital gains are not taxed at the state level.
Nonresident withholding. None at the state level.
Does Texas conform to Section 1031?
Yes — a qualifying exchange defers state tax alongside federal.
Texas levies no personal income tax, so a sale is taxed only federally; a 1031 exchange still defers the federal 20% capital-gains rate plus the 3.8% net investment income tax.
Passive replacement property with a DST
Many Texas owners use a Delaware Statutory Trust as replacement property — institutional real estate, professionally managed, that qualifies for 1031 treatment and can absorb both the equity and the debt from the sale.
No. Texas has no personal income tax, so capital gains from selling real estate are not taxed at the state level. You still owe federal tax — the 20% long-term rate plus the 3.8% net investment income tax, about 23.8% on the gain — which a 1031 exchange can defer.
Is a 1031 exchange worth it if Texas has no income tax?
Yes. Even with no state tax, the federal bill on a large gain is substantial (up to 23.8%), and a 1031 into a DST defers all of it while moving you into passive, professionally managed real estate.
Does Texas recognize 1031 exchanges?
There is no Texas income tax to conform, so federal 1031 treatment governs. A qualifying exchange defers the federal gain in full.