Texas has no state capital gains tax

Texas does not tax capital gains at the state level. When you sell an investment, real estate, or other asset for a profit in Texas, you owe no state tax on that gain. This applies whether you live in Texas, work there, or straightforward sell property located in Texas.

You will still owe federal capital gains tax to the IRS, and you may owe tax to another state if you live or work outside Texas. But the state of Texas itself takes no portion of your capital gains, regardless of how large the profit is or how long you held the asset.

Key Takeaways

  • Texas imposes zero state capital gains tax on profits from selling investments, real estate, or other assets.
  • Federal capital gains tax still applies, with rates of 0%, 15%, or 20% depending on your income and how long you held the asset.
  • If you moved to Texas from another state or work in a different state, you may owe capital gains tax to that state even if you live in Texas.
  • Texas also has no state income tax, which is why residents pay no state tax on wages, investment income, or capital gains.

Federal capital gains tax still applies to Texas residents

Although Texas does not tax capital gains, the federal government does. When you sell an asset at a profit, the IRS taxes that gain at the federal long-term or short-term capital gains rate, depending on how long you owned it.

Long-term capital gains — profits from assets you held for more than one year — are taxed at 0%, 15%, or 20%, depending on your total taxable income for the year. Short-term capital gains — profits from assets you held for one year or less — are taxed as ordinary income, which means they use the same tax brackets as wages (10%, 12%, 22%, 24%, 32%, 35%, or 37%).

The federal rates and income thresholds change each year. For 2024, the 15% long-term rate applies to single filers with taxable income between roughly $47,000 and $518,000, but these numbers shift annually. The IRS publishes updated brackets each January.

Why Texas has no capital gains tax

Texas has no state capital gains tax because it has no state income tax at all. The state does not tax wages, investment income, dividends, or interest. This is a deliberate policy choice: Texas funds state government through sales tax, property tax, and business taxes instead.

Nine other states also have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming. New Hampshire taxes only dividend and interest income, not wages or capital gains. The remaining 40 states and the District of Columbia tax capital gains as part of their income tax systems.

What happens if you move to Texas from a state with capital gains tax

If you sell an asset while living in a state with capital gains tax, you owe that state's tax on the gain, even if you move to Texas the next day. The tax is based on where you lived when you sold the asset, not where you live now.

However, if you owned the asset before you moved to Texas and sell it after you move, you owe no Texas capital gains tax. You may owe federal tax and tax to your previous state if that state taxes non-residents on assets sold after they leave — this varies by state and depends on factors like whether you still own property there or work there.

If you work in another state but live in Texas, you may owe capital gains tax to that state depending on its rules. Some states tax only residents; others tax anyone who works there. Check the tax rules of any state where you work or own significant property.

Capital gains tax on real estate sales in Texas

When you sell real estate in Texas, you owe no state capital gains tax on the profit. You will owe federal capital gains tax if the sale results in a gain, and the rate depends on how long you owned the property and your income level.

You may also owe property tax to the county or municipality where the property is located, but this is a tax on the property itself, not on your gain. If you sell a home you lived in, you may be able to exclude part or all of the gain from federal tax under the primary residence exclusion — up to $250,000 for single filers or $500,000 for married couples filing jointly, if you meet the ownership and use requirements.

If you sell real estate in another state, you owe that state's capital gains tax (if it has one) based on the location of the property, not where you live. The property location determines which state can tax the gain.

Investment account gains and Texas tax

Profits from selling stocks, bonds, mutual funds, or other investments are not taxed by Texas. You owe federal capital gains tax on the gain, but no state tax.

You may owe federal tax on dividends and interest earned in the account even if you do not sell anything. Texas does not tax these either, but the IRS does. Keep records of your cost basis (what you paid for the investment) and the sale price so you can calculate your gain accurately when you file your federal return.

Frequently Asked Questions

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

No. Texas has no state capital gains tax. You will owe federal capital gains tax to the IRS based on your gain and how long you held the stock, but Texas takes no portion of it.

What if I moved to Texas last year and sold an investment this year?

You owe no Texas capital gains tax on the sale. If you sold the investment after moving to Texas, only federal tax applies. If you sold it before moving, you may owe tax to your previous state depending on that state's rules.

Is capital gains tax the same as income tax?

No. Capital gains tax is a tax on profits from selling assets. Income tax is a tax on wages and other earnings. Texas has neither. The federal government taxes both capital gains and income, but at different rates.

Do I have to report capital gains to Texas?

No. You report capital gains only to the IRS on your federal tax return (Form 1040 and Schedule D). Texas does not require a separate report because it does not tax capital gains.

What if I own property in another state and sell it?

You owe capital gains tax to the state where the property is located, not to Texas. The property location determines which state can tax the gain. You will also owe federal tax on the gain.