1031 Exchange in Texas: A Plain-English Investor Guide.

A 1031 exchange in Texas follows the same federal rules that apply everywhere: Section 1031 gives you 45 days to identify a replacement property and 180 days to close, with all sale proceeds routed through a Qualified Intermediary. Texas has no state income tax, which means there is no separate Texas state tax on capital gains to defer at the state level. What matters most for Texas investors is the property tax dynamic and the deep in-state and Sunbelt replacement inventory.

Last updated: June 2026 · For Texas-resident accredited investors

The federal rules in 60 seconds.

A 1031 exchange lets you sell investment real estate and reinvest the proceeds into like-kind replacement property while deferring federal capital gains tax. Two firm deadlines apply: Day 45 to identify replacement property in writing to your Qualified Intermediary, and Day 180 to close on it.

Your sale proceeds must go to the QI, not to you. Taking constructive receipt blows up the exchange. For the complete federal framework, see our 1031 Exchange Guide.

Texas’s tax interaction with Federal 1031.

Texas does not impose a state personal income tax. There is no state-level capital gains tax to defer, and no state-level conformity question to resolve. A Texas 1031 exchange defers only federal capital gains tax and federal depreciation recapture. For a Texas investor selling appreciated investment real estate, the federal Section 1031 deferral is the entire state-and-federal tax-deferral story.

Texas does have one of the highest property tax burdens in the country, with average effective rates above 1.6% of market value in many counties. Property tax follows the replacement property’s appraised value, which is reset at acquisition. Unlike California’s Proposition 13, Texas does not cap year-over-year appraisal increases for non-homestead property at low levels. A 10% annual appraisal cap applies only to homestead property, not to investment real estate. Plan for property tax to be a meaningful operating expense on any Texas replacement property.

Practical implication. Texas does impose a franchise tax (the so-called “margin tax”) on entities doing business in the state above an annual revenue threshold. Most individual real estate investors holding property in pass-through structures (LLCs taxed as partnerships or disregarded entities) are below the threshold or otherwise exempt, but the franchise tax is worth checking with your CPA for any new entity formed to hold replacement property.

Qualified Intermediary notes for Texas investors.

Texas does not impose a state-specific licensing regime for Qualified Intermediaries beyond general consumer-protection rules. Most national QIs serving the broader market are available to Texas investors. The standard diligence questions apply:

For Texas investors, give particular weight to a QI’s ability to coordinate with title companies in Texas counties where the relinquished and replacement properties sit. Texas closings move through title companies under standard practice; a QI with strong Texas title-company relationships speeds the process.

Common questions from Texas investors.

Where Texas investors find replacement property.

Texas has both a large in-state replacement market (DFW, Houston, Austin, San Antonio metros) and abundant Sunbelt options for diversification. Common patterns include in-state DSTs holding Texas multifamily or industrial, and out-of-state DSTs holding Florida, Tennessee, North Carolina, or Arizona properties to diversify away from concentration in a single Texas metro.

Texas property tax structure, high rate and full reset on transfer, is a real underwriting input for any Texas replacement property. DSTs holding net-leased property where the tenant covers property tax (NNN structures) can be attractive to Texas investors specifically because they isolate the property-tax burden onto the tenant.

For more on how DSTs work as 1031 replacement property, see our DSTs Explained guide. For evaluating the sponsor of any DST you consider, including the framework we apply to our own offerings, see our Sponsor Evaluation Framework.