Texas does not have a state capital gains tax

Texas has no state income tax of any kind, which means you do not pay Texas tax on capital gains — the profit you make when you sell an investment for more than you paid for it. This applies whether you sell stocks, real estate, cryptocurrency, or other assets. You will still owe federal capital gains tax to the IRS, but Texas itself collects nothing.

This is different from most states. Forty-one states and Washington, D.C. tax capital gains as ordinary income or at a separate rate. Texas is one of nine states with no income tax at all. The other eight are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming.

Because Texas has no state income tax, you do not file a state return for capital gains. You report all capital gains on your federal return using IRS Form 8949 and Schedule D, which calculate your federal tax based on how long you held the asset and your total income for the year.

Key Takeaways

  • Texas collects no state capital gains tax, no state income tax, and no tax on investment profits of any kind.
  • You still owe federal capital gains tax to the IRS at the rate that applies to your income level and how long you held the asset.
  • Long-term capital gains (assets held over one year) are taxed at lower federal rates than short-term gains, regardless of where you live.
  • If you moved to Texas from another state, you do not owe that state's capital gains tax on gains you realize after you become a Texas resident.

Federal capital gains tax still applies in Texas

Although Texas has no state tax, the IRS taxes capital gains at the federal level. The rate depends on two things: how long you held the asset and your total taxable income for the year.

Long-term capital gains — profits on assets you held for more than one year — are taxed at 0%, 15%, or 20%, depending on your income bracket. These rates are lower than ordinary income rates. For 2024, the 0% rate applies to single filers with taxable income up to $47,025; the 15% rate applies from $47,026 to $518,900; and the 20% rate applies above that.

Short-term capital gains — profits on assets you held for one year or less — are taxed as ordinary income at rates ranging from 10% to 37%. These are the same rates that explore to wages and salary.

You report both types of gains on your federal return. The IRS uses Form 8949 to list each sale, and Schedule D to calculate your total gain or loss and determine which tax rate applies.

Moving to Texas does not retroactively erase prior state taxes

If you sold an investment while living in another state and then moved to Texas, you owe that state's capital gains tax on the gain you realized before you moved. Texas residency does not change your tax obligation for transactions that happened in another state.

However, any gains you realize after you become a Texas resident are not subject to state capital gains tax. You will need to determine your residency date — usually the date you establish a permanent home in Texas and abandon your prior state residence — because that is the line between what you owe to your old state and what you do not.

Some states also tax gains on property located within their borders, even if you no longer live there. For example, if you own rental real estate in California and sell it after moving to Texas, you may owe California tax on that gain. The tax treatment depends on the state where the property is located, not where you live.

Investment income other than capital gains

Texas also has no tax on dividends, interest, or other investment income. If you receive dividend payments from stocks, interest from bonds, or distributions from mutual funds, you owe no Texas state tax on that money.

You do owe federal tax on dividends and interest. may have access to dividends are taxed at the same rates as long-term capital gains (0%, 15%, or 20%). Non-may have access to dividends and interest income are taxed as ordinary income at rates up to 37%.

Because Texas has no income tax, it also has no tax on retirement account withdrawals. If you withdraw money from a traditional IRA or 401(k), you owe federal income tax on that withdrawal, but no Texas state tax. This is one reason some people move to Texas after retirement.

How Texas funds government without income tax

Texas funds state government through sales tax, property tax, and business taxes instead of income tax. The state sales tax is 6.25%, though local taxes can raise the total to as high as 8.25% depending on the county. Property taxes in Texas vary widely by county and school district.

Texas also taxes business income through the franchise tax, which applies to businesses with more than $1.23 million in annual revenue. This is not an income tax on individuals, but a tax on business operations.

Frequently Asked Questions

Do I owe Texas tax if I sell a stock while living in Texas?

No. Texas has no capital gains tax, so you owe no state tax on the profit. You will owe federal capital gains tax to the IRS based on how long you held the stock and your income level for the year.

What if I inherit an investment that has gained value?

Inherited assets receive a "step-up in basis," meaning your cost basis becomes the asset's value on the date of death. If you sell it shortly after inheriting it, you typically owe little or no capital gains tax. Texas has no state tax on inherited gains either.

Does Texas tax real estate sales?

Texas does not tax capital gains on real estate sales, including your home. You owe no state tax on the profit when you sell a house or investment property. You may owe federal capital gains tax if the gain is large enough, but the sale itself is not taxed by Texas.

If I move out of Texas, do I owe Texas tax on gains I realize after I leave?

No. Once you establish residency in another state, you no longer owe Texas tax on capital gains. You will owe tax to your new state if it has a capital gains tax or income tax. Your residency date is the key — gains realized after that date are not Texas's responsibility.

Are there any deductions or credits for capital gains in Texas?

Texas offers no deductions or credits for capital gains because it has no capital gains tax. Any deductions or credits you use come from the federal tax system, not from Texas.