Texas does not have a state capital gains tax
Texas is one of nine states that does not tax capital gains at the state level. When you sell an investment—a stock, rental property, or other asset—for more than you paid for it, that profit is called a capital gain. In Texas, you owe no state tax on that gain, no matter how large it is. The federal government still taxes capital gains, but Texas itself does not.
This applies whether your gain is short-term (you held the asset less than a year) or long-term (you held it a year or more). It also applies to all types of investments: stocks, bonds, real estate, cryptocurrency, or anything else you sell at a profit. The absence of a state capital gains tax is one reason some investors and retirees choose to live in Texas.
Key Takeaways
- Texas has no state capital gains tax, so you pay no state tax on profits from selling stocks, real estate, or other investments.
- You still owe federal capital gains tax on those profits, which varies depending on your income and how long you held the asset.
- Texas funds state government through sales tax, property tax, and business taxes instead of income or capital gains taxes.
- If you move to Texas from another state, capital gains you earned before moving are still taxed by your former state.
How Texas funds government without a capital gains tax
Texas has no state income tax and no capital gains tax. Instead, the state relies on sales tax, property tax, and business taxes to fund schools, roads, and other services. The statewide sales tax is 6.25 percent, and local governments can add up to 2 percent more, making the total sales tax range from 6.25 to 8.25 percent depending on where you live.
Property tax in Texas is set by county and school district, not the state, so rates vary widely. The state also taxes businesses through the franchise tax, which applies to most corporations and some partnerships. Because Texas does not tax income or capital gains, residents pay a larger share of their taxes through consumption and property rather than earnings.
Federal capital gains tax still applies in Texas
Even though Texas has no state capital gains tax, the federal government does. When you sell an asset at a profit, you report that gain on your federal tax return. The federal tax rate depends on how long you held the asset and your total income for the year.
Long-term capital gains (assets held more than one year) are taxed at 0 percent, 15 percent, or 20 percent depending on your income bracket. Short-term capital gains (assets held one year or less) are taxed as ordinary income, which can range from 10 percent to 37 percent. A Texas resident pays the same federal capital gains tax as someone in any other state—the state difference is that Texas adds nothing on top of it.
Capital gains from real estate sales in Texas
When you sell a home or investment property in Texas, you owe no state capital gains tax on the profit. However, you still owe federal capital gains tax unless you may have access to for an exemption. If you are selling your primary residence, you may be able to exclude up to $250,000 of gain (or $500,000 if you are married filing jointly) if you meet the ownership and use tests.
Investment properties and rental homes do not may have access to for this exclusion, so you pay federal tax on the full gain. Texas property tax is based on the assessed value of the property, not the sale price, so selling a property does not trigger a property tax increase in most cases. However, the county assessor may reassess the property after a sale, which could affect your future property tax bills.
Moving to Texas and capital gains from your previous state
If you sell an investment while living in another state and then move to Texas, you still owe tax to your former state on that gain. State capital gains tax is based on where you lived when you sold the asset, not where you live now. For example, if you sold stock while living in California and then moved to Texas three months later, California taxes that gain even though you no longer live there.
The same rule works in reverse: if you move to Texas and then sell an asset, Texas does not tax the gain, even if you bought the asset while living in another state. Your residency at the time of sale is what matters. If you are planning a move and have large gains to realize, consult a tax professional about the timing, because the state you live in when you sell can make a significant difference.
Other states without capital gains tax
Texas is one of nine states with no capital gains tax. The others are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming. New Hampshire and Tennessee tax only dividend and interest income, not capital gains from asset sales, which makes them functionally similar to the other seven.
Some states have recently proposed or passed capital gains taxes. Washington state passed a capital gains tax in 2021, though it faced legal challenges. Other states periodically debate adding a capital gains tax as a way to raise revenue. If you are considering a move based on tax treatment of investments, check the current rules in any state you are thinking about, because tax law can change.
Frequently Asked Questions
Do I have to report capital gains to Texas if I live there?
No. Texas does not require you to report capital gains to the state. You still must report them to the federal government on your federal tax return, but Texas has no state reporting requirement or state tax on those gains.
What if I inherit stock or property in Texas—do I owe capital gains tax?
No capital gains tax applies to inherited assets in Texas. At the federal level, inherited assets receive a "step-up in basis," which means the cost basis resets to the value on the date of death, so you typically owe no federal capital gains tax either unless you later sell the asset for more than its value at inheritance.
Does Texas tax cryptocurrency gains?
Texas does not tax cryptocurrency gains at the state level. You still owe federal capital gains tax when you sell cryptocurrency at a profit. The IRS treats cryptocurrency as property, so the same long-term and short-term capital gains rules explore.
If I move out of Texas, do I owe back capital gains tax?
No. Capital gains tax is based on your state of residence when you sell the asset. If you sold assets while living in Texas, you owed no Texas tax then and owe none now, even if you move to a state that does tax capital gains.
Can I reduce my federal capital gains tax by living in Texas?
No. Federal capital gains tax is the same regardless of which state you live in. Living in Texas saves you only the state capital gains tax that other states charge. Your federal tax bill depends on your income and the federal tax brackets, not your state of residence.