1031 Exchange & DST Investing in Texas
Texas has no state personal income tax, so a real estate sale is a federal-only capital-gains event and a 1031 exchange defers just the federal tax. Dallas-Fort Worth, Houston, Austin, and San Antonio form one of the deepest and fastest-growing replacement markets in the country.
State tax treatment of a 1031 exchange
Texas imposes no state personal income tax, so there is no state-level tax on the gain from selling real property and no state conformity question. The only capital-gains exposure on a sale is federal, and a properly structured Section 1031 exchange defers that federal gain.
Because there is no state income tax, Texas imposes no nonresident seller withholding on real estate transactions and has no clawback or continued-reporting requirement for gain deferred into out-of-state replacement property.
Market snapshot
Texas offers four major metros — Dallas-Fort Worth, Houston, Austin, and San Antonio — that rank among the largest and most active real estate markets in the nation. Multifamily, industrial and logistics, and net-lease retail dominate investor demand, supported by strong build-to-rent, medical, and energy-related activity.
Texas has led the country in population and job growth for years, fueled by corporate relocations, in-migration, and a diversified economy spanning technology, energy, healthcare, and trade. That scale and momentum make Texas one of the most sought-after destinations for 1031 replacement capital nationwide.
Why 1031 & DST investors look here
- No state income tax, so gains are taxed only federally
- Four major metros offering deep, liquid replacement inventory
- National leader in population and job growth
Replacement-property options
Replacement property need not be located in Texas — like-kind real estate is nationwide — but Texas is frequently a destination rather than a source for exchange capital. Texas owners and inbound exchangers alike use DSTs, 721 UPREIT contributions, and Opportunity Zone investments to move into passive, professionally managed multifamily, industrial, and net-lease assets across the state's major metros or nationally.
Frequently asked questions
Does Texas tax a 1031 exchange?
Texas has no state income tax, so there is no state tax on the gain whether or not you exchange; only federal capital-gains tax applies, and a valid 1031 exchange defers it.
Can I exchange Texas property for out-of-state DSTs?
Yes. Like-kind property can be located anywhere in the U.S., so Texas owners can exchange into DSTs and other replacement property in any market.
Is there nonresident withholding when I sell Texas real estate?
No. Because Texas has no state income tax, it imposes no state nonresident seller withholding on real estate sales.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.