1031 Exchange in Texas

Section 1031 is federal law, so exchanging investment real estate in Texas follows the same rules as anywhere else in the country: like-kind real property held for investment or productive use in a trade or business, a qualified intermediary, 45 calendar days to identify replacement property, and 180 calendar days to close.

What makes Texas notable is what it does not add. Texas has no state income tax, so there is no state-level capital gains bill layered on top of the federal one, and no state deferral election to file alongside your federal exchange. The analysis is federal-only.

Key points for Texas exchangers

• The 45-day and 180-day deadlines, identification rules, and like-kind standards are identical in Texas — they come from the Internal Revenue Code, not state law.
• Texas imposes no state income tax on individuals, so a properly completed exchange defers the federal gain and there is no separate state gain to manage.
• Texas does not impose a real estate transfer tax on deeds, which keeps closing-cost math simpler than in many states.
• Property taxes are a meaningful part of underwriting Texas real estate; they fund what income taxes fund elsewhere. Review the tax history and any exemptions on both the property you sell and any Texas property you acquire.
• You can exchange out of Texas into another state, or into Texas from another state. If you exchange out of a state that has an income tax into Texas, that origin state's rules — including any clawback provisions — are what need attention, not Texas's.

Exchanging into a DST from a Texas sale

Texas sellers use the same DST mechanics as everyone else: a Delaware Statutory Trust interest qualifies as like-kind replacement property under IRS Revenue Ruling 2004-86, closings are typically fast because the property and financing are already in place, and fractional interests make it practical to match your exact equity and debt figures. Many of the DST offerings on this platform hold Texas properties, though geography should follow the underwriting, not the other way around.

Frequently Asked Questions

Does Texas require anything extra to complete a 1031 exchange?

No. There is no Texas state filing, election, or withholding specific to 1031 exchanges. Your federal reporting on Form 8824 covers the exchange.

If I sell in California and buy in Texas, do I escape California tax?

Not automatically. California requires annual reporting on exchanged gains sourced to California and claws the deferred tax back when you eventually sell without exchanging. The move to a no-income-tax state changes your go-forward picture, not the deferred California-source gain. Confirm specifics with your CPA.

Is there a Texas transfer tax when my sale or purchase closes?

Texas does not levy a state deed transfer tax. Ordinary recording fees and title costs still apply and appear on your closing statement.

Disclosures

This page is general educational information about federal and Texas treatment of like-kind exchanges. It is not tax, legal, or investment advice, and state and federal rules change. Securities offered through Aurora Securities, Inc. (ASI), CRD #46147, SEC #8-51322, member FINRA/SIPC. Gerald F. "Jerry" Baker, III is a registered representative of ASI (FINRA CRD #7537416). Baker 1031 Investments, LLC is independent of ASI. Confirm the treatment of your specific transaction with your CPA and attorney before acting.