Texas 1031 Exchange
Last reviewed: August 2026. Rules change. Verify before closing.
Texas 1031 Exchange: How It Works and What It Costs
A 1031 exchange lets you sell an investment property and buy another without paying tax on the gain right away. The tax is deferred, not forgiven, and the deadlines are strict.
Texas makes this about as simple as it gets. There is no state income tax, no state capital gains tax, no withholding at closing, and no state exchange paperwork.
So why bother? Because the federal tax bill does not care where you live, and it is usually bigger than owners expect. At higher federal rates, capital gains tax, the net investment income tax, and the 25% rate on unrecaptured Section 1250 gain can take roughly a quarter of the gain.
We handle Texas 1031 exchanges as an attorney-owned qualified intermediary. For most delayed exchanges, a qualified intermediary is the standard safe harbor used to hold the proceeds so you never receive or control them. Our offices are in College Station and Dallas, so you work with someone in your own state.
Texas 1031 Exchange at a Glance
| Question | Texas answer |
|---|---|
| State treatment of a 1031 exchange | No state income tax deferral issue, because Texas has no individual income tax |
| State tax on the gain | None |
| Withholding at closing | None |
| Exchange exemption form | None |
| Claw-back or annual reporting | None |
| State real estate transfer tax | None |
| Entity considerations | Texas franchise tax may apply to entities |
| Identification deadline | 45 days (federal) |
| Completion deadline | Earlier of day 180 or your return due date with extensions (federal) |
| WealthBuilder flat fee | $1,000 |
What a Texas 1031 Exchange Costs
A standard delayed exchange costs a flat $1,000. You pay $750 at the sale closing and $250 at the replacement purchase closing. We take no percentage of your proceeds.
That fee covers your exchange documents and direct coordination with your title company, lender, and tax advisor. Reverse and improvement exchanges take more work, so we quote those individually.
Your funds sit in segregated accounts at an FDIC-insured institution, with deposit insurance coverage of up to $240 million per account. Every transaction requires dual authorization.
What a Texas 1031 Exchange Defers
Say you sell a Houston fourplex for $1,000,000. You bought it for $600,000 and took $100,000 of depreciation. Your adjusted basis is $500,000, so your gain is $500,000.
| Tax | Maximum-rate illustration | Amount |
|---|---|---|
| Unrecaptured Section 1250 gain | up to $100,000 x 25% | $25,000 |
| Long-term capital gain | up to $400,000 x 20% | $80,000 |
| Net investment income tax | up to $500,000 x 3.8% | $19,000 |
| Texas income tax | none | $0 |
| Total potential tax | up to $124,000 |
This table shows a maximum-rate illustration, not a calculation of what any particular investor owes. Your rates depend on income, filing status, and basis. The net investment income tax applies based on your net investment income and modified adjusted gross income, so it may not reach the whole gain.
That first line surprises people. Depreciation you already deducted comes back as unrecaptured Section 1250 gain when you sell, taxed at up to 25%, even if the building barely appreciated. A qualifying exchange may defer all three layers.
Run your own numbers with our 1031 exchange calculators, then confirm them with your tax advisor.
How Texas Taxes Your Property Sale
Individual income tax: none. Texas taxes neither income nor capital gains. For an individual investor, the state adds nothing to the transaction.
Withholding at closing: none. Texas requires no withholding from resident or nonresident sellers. No exemption forms, no certificates, no waiting on a refund.
Conformity: not applicable. With no personal income tax, Texas takes no position on your exchange.
One qualifier for entity owners. It is tempting to say a Texas 1031 is purely federal, and for an individual that is close enough. If you hold property in an LLC, partnership, or corporation, Texas franchise tax and entity reporting can still be in play. The franchise tax is based on revenue rather than on your gain, but a large disposition can affect your entity's filing. Ask your CPA before you assume Texas is silent.
When Another State Is Involved
Texas draws capital from higher-tax states, which means many exchanges here cross a state line.
Selling elsewhere, buying in Texas. The selling state's rules control that closing. Several states withhold at closing, and most of those offer an exchange exemption or reduced-withholding procedure. Your QI helps coordinate the form.
Bringing deferred gain into Texas. Buying in Texas does not release you from the state you left. California is the sharpest example. Exchange California property into a Texas building and you must file California Form FTB 3840 every year you hold it. California can tax the deferred gain when you finally cash out. Oregon, Montana, and Massachusetts run similar claw-backs.
Selling in Texas, buying elsewhere. Texas takes nothing today. The new state's rules govern when you eventually sell there.
The Federal Rules That Do Not Change
You have 45 days from the day your sale closes to identify replacement property in writing. The identification must be signed and must describe the property unambiguously.
Deliver it to your qualified intermediary or another permitted party involved in the exchange. Do not assume that sending it only to your own attorney, accountant, broker, or agent satisfies the rule. Many of those advisors are disqualified recipients because of their relationship to you.
Three rules govern how much you may identify. Under the three-property rule, you may identify up to three properties at any value. Under the 200% rule, you may identify any number of properties as long as their combined fair market value does not exceed 200% of what you sold. Under the 95% rule, you may exceed both limits only if you actually acquire at least 95% of the value you identified.
Most investors use the three-property rule. Identify more than you need, then close on the one that works.
You generally have 180 days from the sale closing to acquire replacement property. The actual deadline is the earlier of day 180 or the due date of your federal income tax return for the year of the sale, including extensions.
Filing your return early does not shorten the exchange period. Failing to extend it can. If your normal return due date arrives before day 180, file an extension before that due date. The IRS also grants limited deadline relief after presidentially declared disasters.
Texas Property That Qualifies for a 1031 Exchange
We act as qualified intermediary across Texas investment real estate. That includes multifamily and apartments, retail and shopping centers, office and medical office. It also covers industrial and warehouse, self-storage, and single-tenant net-lease. We handle mixed-use, ranch and investment land, and 1 to 4 unit rentals.
Property held for investment or business use generally qualifies. Primary residences and properties bought to flip generally do not.
How to Start Your Texas 1031 Exchange
- Call 888-508-1901 before your sale closes. The exchange must exist before closing. Nobody can fix it afterward.
- We prepare your exchange agreement and coordinate with your closing team, so proceeds go straight to your segregated account.
- You identify within 45 days and close within the period described above. We track both dates with you.
- We release funds only for qualified replacement property, and we document the exchange.
Texas 1031 Exchange Risks Worth Knowing
The deadlines do not bend. Texas adds no extensions to the federal clock.
Boot is still taxable. Cash you take out creates recognized gain, and so does debt you fail to replace. To defer the full gain, reinvest all net proceeds and replace any paid-off debt with financing or cash.
Deferral is not forgiveness. The federal tax comes due when you sell without exchanging. A step-up in basis at death may change that for your heirs. Ask your estate planning attorney.
Obligations from other states follow you. A prior exchange out of a claw-back state carries annual filing duties into your Texas ownership.
When a Texas 1031 Exchange May Not Be the Right Call
Deferring tax is not automatically the best outcome. An exchange may be the wrong move if the replacement property is a weaker investment than the cash, if you need most of the proceeds for something else, if the gain is small enough that the friction outweighs the benefit, or if your estate plan already points toward a basis step-up.
We would rather tell you that before you start than after your 45 days are running.
WealthBuilder 1031 acts solely as your qualified intermediary. We do not provide tax, legal, or investment advice, and we do not sell investments or securities.
1031 Exchange Activity Across Texas
Investors run exchanges across Texas, from Houston, Dallas, and Fort Worth to Austin and San Antonio. Replacement property commonly includes multifamily, retail, industrial, and net-lease assets, along with Delaware Statutory Trust (DST) interests for investors who want a hands-off option.
Many Texas owners reinvest in and out of state, and the lack of a state income tax draws buyers from higher-tax states. Wherever you sell, that state sets the withholding and reporting at closing. Texas itself adds no income tax and no claw-back, so the exchange stays simple, and we coordinate any out-of-state obligations with your CPA.
Frequently Asked Questions
How much does a 1031 exchange cost in Texas?
A flat $1,000 for a standard delayed exchange. You pay $750 at the sale closing and $250 at the replacement purchase closing. We quote reverse and improvement exchanges separately.
Is WealthBuilder 1031 based in Texas?
Yes. We are attorney-owned with offices in College Station and Dallas, serving investors statewide and nationwide.
Does Texas tax 1031 exchanges?
For individual investors, no. Texas has no individual income or capital gains tax, so there is no state tax to defer and no state exchange filing. Entity owners may still have Texas franchise tax and reporting considerations.
Why exchange at all if Texas takes nothing?
Federal taxes. Capital gains, unrecaptured Section 1250 gain, and the net investment income tax can take roughly a quarter of the gain at higher rates.
I hold the property in an LLC. Does Texas change anything?
Possibly. Texas franchise tax applies to some entities based on revenue. It does not tax your gain, but a large disposition can affect entity reporting. Ask your CPA.
Does Texas withhold anything at closing?
No, for residents and nonresidents alike.
Do I still need a qualified intermediary in Texas?
For most delayed exchanges, a qualified intermediary is the standard structure used to keep you from receiving or controlling the sale proceeds. Other regulatory safe harbors exist, but a qualified intermediary is how the large majority of delayed real estate exchanges are handled. Touch the proceeds yourself and you lose the deferral, in any state.
Sources
- IRS, Like-Kind Exchanges, Real Estate Tax Tips
- IRS, Instructions for Form 8824
- 26 CFR 1.1031(k)-1, deferred exchanges
- Texas Comptroller, franchise tax
1031 Exchange Services Across Texas
WealthBuilder 1031 serves real estate investors throughout Texas, including Abilene, Alpine, Alvin, Amarillo, Arlington, Athens, Austin, Baytown, Beaumont, Beeville, Belton, Big Spring, Borger, Brenham, Brownsville, Brownwood, Canyon, Carthage, Cedar Hill, Cisco, Clarendon, College Station, Commerce, Corpus Christi, Corsicana, Dallas, Denison, Denton, Edinburg, El Paso, Farmers Branch, Fort Worth, Gainesville, Galveston, Garland, Georgetown, Harlingen, Hawkins, Hillsboro, Houston, Huntsville, Irving, Jacksonville, Keene, Kerrville, Kilgore, Killeen, Kingsville, Lake Jackson, Lancaster, Laredo, Levelland, Longview, Lubbock, Lufkin, Marshall, McAllen, McKinney, Mesquite, Midland, Milam County, Mount Pleasant, Nacogdoches, Odessa, Orange, Paris, Pasadena, Plainview, Port Arthur, Prairie View, Ranger, Richardson, Rockwall, San Angelo, San Antonio, San Marcos, Seguin, Sherman, Snyder, Stephenville, Sweetwater, Temple, Terrell, Texarkana, Texas City, The Woodlands, Tyler, Uvalde, Vernon, Victoria, Waco, Waxahachie, Weatherford, Webster, Wharton, and Wichita Falls.
Do not see your city? We serve investors statewide. Call 888-508-1901 to start your Texas exchange.
This page does not constitute legal or tax advice. Consult your attorney and tax advisor about your specific situation.
