Texas 1031 Exchange & Investment Advisors

1031 Exchange in Texas

Texas stands apart from most states in one critical way for real estate investors: it imposes no state income tax. When you sell investment real estate in Texas, the only capital gains tax you owe is at the federal level, a combined rate of 23.80% made up of the 20% long-term capital gains rate and the 3.8% Net Investment Income Tax. There is no additional Texas layer on top of that.

That 23.80% can still represent a substantial liability. On a $2 million Texas property with $800,000 in gain, the federal tax bill alone reaches $190,400. A 1031 exchange lets Texas investors defer that entire federal obligation by reinvesting proceeds into like-kind replacement property rather than triggering a taxable sale.

Texas follows the standard federal rules and requirements with no state-specific additions. The 45-day identification window and 180-day closing deadline are purely federal timelines, and Texas does not impose any separate state exchange procedures, state filings, or state-level documentation on top of those. A qualified intermediary must hold exchange proceeds throughout the process, as direct receipt of funds by the investor disqualifies the exchange entirely.

Texas also has no clawback provision. Investors who exchange out of a Texas property and purchase replacement property in another state owe no ongoing Texas tax filings on that out-of-state income. The exchange closes cleanly at the federal level, and Texas has no mechanism to recapture deferred gains the way California does under Section 18032 and Form 3840.

1031 Exchange Place maintains a Texas office in Houston, giving investors across Dallas-Fort Worth, Houston, Austin, and San Antonio access to local qualified intermediary services with direct knowledge of Texas investment markets. Whether you are selling a commercial property in the Houston Energy Corridor or a multifamily asset in the DFW Metroplex, timing and documentation are critical, and having a local advisor helps you meet those federal deadlines without surprises.

Tenants in Common in Texas

Tenants in Common ownership allows multiple investors to hold a deeded fractional interest in a single property without creating a partnership or corporate entity. Each co-owner holds title separately, can direct their share as part of an estate plan, and can use that interest as either the relinquished or replacement leg of a 1031 exchange.

Texas commercial real estate, particularly multi-tenant retail centers, industrial warehouses, and office properties across the DFW and Houston corridors, has drawn consistent investor interest due to the state’s population growth and business relocations. TIC investments give individual investors a way to participate in larger commercial assets at a fractional ownership level that a single-buyer acquisition would not otherwise allow.

Because Texas imposes no personal income tax, investors who hold a Texas TIC property receive their rental distributions without any state income tax obligation. For out-of-state investors seeking replacement property with no state tax drag on future income, Texas TIC properties carry a structural advantage that most other states cannot match.

Delaware Statutory Trusts in Texas

A Delaware Statutory Trust is a fractional ownership structure recognized under IRS Revenue Ruling 2004-86 as qualifying replacement property in a 1031 exchange. Investors acquire a beneficial interest in a trust that holds a single property or a portfolio of properties, and a professional sponsor manages the asset entirely. There are no landlord responsibilities, no tenant calls, and no day-to-day management decisions for the investor.

For Texas investors, DSTs offer a way to defer the 23.80% federal capital gains tax while stepping out of active property management. Because Texas has no state income tax, DST distributions flow to Texas-resident investors without any state-level withholding or income tax obligation, and that same treatment applies to gain recognized when the DST eventually disposes of the underlying asset.

Texas investors considering a DST 1031 exchange should understand that most sponsors require investors to qualify as accredited investors, generally a net worth of $1 million or more excluding a primary residence, or annual income of $200,000 or more. Minimum investment thresholds typically run from $25,000 to $100,000 depending on the sponsor. Before committing capital, reviewing the Delaware Statutory Trust risks in full, including illiquidity, sponsor concentration, and the inability to refinance or make property decisions once the trust is formed, is an important step before proceeding.