Does Texas have a capital gains tax on real estate?
No. Capital gains tax in Texas on real estate is zero at the state level, since Texas does not tax the income of individuals, and a gain on a building is income. The federal tax still applies in full, so the whole bill on a Texas sale is the federal bill.
The rule is written into the Texas Constitution. Article VIII, Section 24-a, approved by voters in 2019 through HJR 38, bars a state tax on the net incomes of individuals, including an individual’s share of income from a partnership or unincorporated association. Changing that would take another constitutional amendment and a statewide vote.
That does not mean every Texas seller walks away with no state cost. If the building sits in an LLC, a limited partnership or a corporation, the entity may owe the Texas franchise tax for the year of the sale. And if you live in another state, your home state may tax the gain even though the building is in Texas. Both are covered below.
State tax vs federal tax on a Texas property sale
On a Texas sale you pay federal tax only, while an owner selling the same building in an income-tax state adds a state layer on top. The table shows what applies to an individual who owns a Texas apartment building directly or through a pass-through entity.
| Part of the gain | Federal rate in 2026 | Texas rate |
|---|---|---|
| Long-term gain (held more than a year) | 0%, 15% or 20%, based on taxable income | None |
| Unrecaptured Section 1250 gain (prior straight-line depreciation) | Up to 25% | None |
| Short-term gain (held a year or less) | Ordinary rates, 10% to 37% | None |
| Personal property recapture (Section 1245, often from cost segregation) | Ordinary rates | None |
| Net investment income tax | 3.8% above $200,000 MAGI single or $250,000 joint | None |
2026 federal capital gains brackets for Texas sellers
The federal long-term rate is 0%, 15% or 20%, and it depends on your total taxable income with the gain stacked on top of your other income. The thresholds below come from IRS Revenue Procedure 2025-32 for tax year 2026.
- Stacking means your wages, rents and other ordinary income fill the brackets first. The gain lands on top, so a large sale often pushes most of it into the 20% band.
- The 2026 ordinary brackets for joint filers run from 10% up to $24,800 to 37% above $768,700, per the IRS inflation release for 2026.
- The 3.8% net investment income tax uses thresholds set in the statute, $200,000 for single filers and $250,000 for joint filers, and they are not indexed for inflation.
| Filing status (2026) | 0% up to | 15% up to | 20% above |
|---|---|---|---|
| Married filing jointly | $98,900 | $613,700 | $613,700 |
| Single | $49,450 | $545,500 | $545,500 |
| Married filing separately | $49,450 | $306,850 | $306,850 |
Depreciation recapture in Texas
Texas does not tax depreciation recapture for individuals, so the only recapture tax on a Texas building is federal. That federal piece is often the largest single line on an apartment sale.
Gain equal to the straight-line depreciation you took on the building is unrecaptured Section 1250 gain, taxed at your ordinary rate but no more than 25%. Residential rental buildings depreciate over 27.5 years, so an owner who held a building for a decade has usually written off more than a third of the building’s cost. If you did a cost segregation study, the parts that were reclassified as personal property (appliances, carpet, some site work) are Section 1245 property, and that recapture is taxed at ordinary rates up to 37%.
Our depreciation recapture calculator splits a gain into these pieces.
Is there withholding at closing on a Texas sale?
No. Texas has no state withholding on real estate sales, so the title company does not hold back any state tax from a nonresident or resident seller. That is a real difference from states such as California, which withholds 3 1/3% of the price on most sales by default.
The federal FIRPTA rule still applies. If the seller is a foreign person, the buyer generally must withhold 15% of the amount realized and send it to the IRS, unless an exception or a withholding certificate applies. A U.S. citizen or resident who signs a certification of non-foreign status at closing is not subject to it.
Texas also has no state real estate transfer tax. Article VIII, Section 29 of the Texas Constitution, added in 2015 through SJR 1, bars a law that taxes a transaction conveying fee simple title to real property. Your closing costs are title, escrow, commission and the usual prorations, with no state deed stamps.
Texas franchise tax when an LLC or partnership sells
An LLC, limited partnership or corporation that sells a Texas building may owe the Texas franchise tax for that year, even though Texas has no income tax on the owners. The franchise tax is a privilege tax on taxable entities formed in Texas or doing business here, and it is figured on the entity’s margin.
For 2026 and 2027 reports, the Texas Comptroller lists a 0.75% rate for most businesses, 0.375% for retail and wholesale, and a 0.331% EZ computation rate for entities with total revenue of $20 million or less. An entity with total revenue at or below $2,650,000 owes no tax, though it still files. Reports are due May 15.
Total revenue starts from specified lines on the entity’s federal return, under Comptroller Rule 3.587. For a partnership those lines include the ones that report gains on business property, so a year with a large sale can lift total revenue above the no-tax-due line even if rents alone would not. Ask your CPA to run the report for the sale year before you set a closing date.
Who is exempt matters. A sole proprietor who owns a building in his or her own name is not a taxable entity, and neither is a joint venture owned directly by natural persons. A single-member LLC is a taxable entity even if it is disregarded for federal tax. A partnership can qualify as a passive entity if at least 90% of its federal gross income is passive, but the Comptroller says rent is not passive income, so most operating apartment partnerships do not qualify. In the year of sale, unrecaptured Section 1250 gain does count as passive income for that test, while ordinary recapture does not.
Moving out of Texas, or owning Texas property from another state
Where you live on the day you sell can matter as much as where the building is. Most states with an income tax tax their residents on all of their income, including a gain on property in Texas, and there is no Texas tax to claim a credit for.
So a Texas resident who sells before moving to an income-tax state pays federal tax only. The same owner who moves first and sells later may owe the new state’s tax on the whole gain. If you are planning a move, talk with a CPA about the closing date, and about installment payments that would arrive after the move.
Out-of-state owners of Texas buildings should look at their home state, not Texas. A California resident who owns a San Antonio fourplex pays California tax on the gain. A Florida or Nevada resident who owns Texas property pays federal tax only, because neither state taxes the income of individuals.
Worked example: selling a $2 million Texas apartment building
A married couple filing jointly bought a 16-unit building in Fort Worth in 2014 for $1,200,000 and have taken $380,000 of straight-line depreciation. They sell in 2026 for $2,000,000 and pay $100,000 in commission and closing costs, so the amount realized is $1,900,000. Their adjusted basis is $1,200,000 minus $380,000, or $820,000, which leaves a gain of $1,080,000.
Their other taxable income is $450,000, which already puts them above the 32% ordinary bracket that starts at $403,550. So the $380,000 of unrecaptured Section 1250 gain is taxed at the 25% cap: $95,000. The other $700,000 is long-term gain stacked on top, all of it above $613,700, so it is taxed at 20%: $140,000. Their MAGI is well over $250,000, so the 3.8% net investment income tax applies to the whole $1,080,000 gain: $41,040.
- If the couple held the building in a multi-member LLC, the federal tax would pass through to them the same way. The LLC would also file a Texas franchise tax report for 2026; with a $1,080,000 gain plus a year of rent, its total revenue would likely stay under the $2,650,000 no-tax-due threshold.
- For a larger entity, the EZ computation shows the scale: on $4,000,000 of total revenue, 0.331% is $13,240 of franchise tax.
- The capital gains tax calculator runs the same steps with your numbers.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Selling costs | $100,000 |
| Adjusted basis ($1,200,000 cost less $380,000 depreciation) | $820,000 |
| Total gain | $1,080,000 |
| Unrecaptured 1250 gain at 25% | $95,000 |
| Long-term gain of $700,000 at 20% | $140,000 |
| Net investment income tax at 3.8% | $41,040 |
| Texas income tax | $0 |
| Total tax on the sale | $276,040 |
How a 1031 exchange changes the Texas tax bill
A 1031 exchange defers the federal tax, and for a Texas individual that is the entire tax, so a full exchange leaves nothing due in the year of the sale. In the example above, buying a replacement worth at least $1,900,000, reinvesting all of the net cash and replacing the debt would defer all $276,040.
There is no Texas form, filing or withholding waiver to arrange for an individual, because there is no state income tax to defer. That makes a Texas exchange simpler on paper than one in California or Oregon. The federal rules still decide everything: 45 days to identify, 180 days to close and a qualified intermediary holding the money. Our 1031 exchange in Texas guide covers the state angles, and the 1031 exchange rules page covers the deadlines.
Selling into an exchange works best when the buyer can match your timeline. Skyline buys apartment buildings with five or more units in Texas. We buy directly, close on your timeline, and can work inside 1031 deadlines.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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