1031 Exchange in Texas: Rules, Taxes, and Finding a QI

The rules: federal law, Texas address

There is no “Texas 1031 exchange” as a legal matter — Section 1031 is federal, and every rule on this site applies unchanged: investment or business-use real property only, a qualified intermediary engaged before closing, written identification within 45 days, closing within 180, equal-or-greater value and debt to avoid boot, and Form 8824 with your federal return. What a state contributes is the tax layer on top, any intermediary regulation, and its market. Texas's contributions: nothing, nothing, and one of the most liquid property markets in the country — which is exactly why it deserves its own page.

The Texas tax picture: what 0% state tax really means

Texas has no personal income tax, so the entire tax on a property sale is federal: long-term capital gains at up to 20%, unrecaptured depreciation at 25%, and the 3.8% net investment income tax where income thresholds are met. A Texas seller's combined top rate of roughly 23.8% compares to 37.1% in California and over 30% in New York (the 50-state table has every state). Two implications: the exchange is still very much worth doing — a fifth to a quarter of your gain is real money — and there's no state return, no state withholding at closing, and no state clawback to track afterward. The one Texas-specific tax to flag with your CPA: the franchise (margin) tax on taxable entities, which is about how your holding entity is taxed generally, not about the exchange.

The law Texas doesn't have: QI regulation

Nine states regulate qualified intermediaries in some form — Nevada, Idaho, and Maine license them outright; California, Washington, Colorado, Oregon, Virginia, and Connecticut impose bonding and conduct statutes. Texas is not on either list. Anyone in Texas can call themselves a qualified intermediary tomorrow with no license, no minimum bond, no custody standard, and no regulator to complain to. That's not a reason to avoid Texas firms — several excellent ones are based here — it's a reason the six vetting questions do all the work: segregated dual-signature custody, a written fidelity bond and E&O, tenure through a market cycle. Our QI map shades exactly which states have laws and which, like Texas, leave it to you.

Ranches, farmland, water, and minerals

The most Texan corner of 1031 law is how broad “like-kind” runs for land. All U.S. real property held for investment or business is like-kind to all other U.S. real property, so a Hill Country ranch can exchange into Dallas industrial, a Panhandle farm into a portfolio of net-lease pharmacies, raw land into an apartment community — or any of those into a DST interest when the owner wants out of operations entirely. It reaches further than buildings: perpetual mineral and royalty interests are real property under Texas law and exchange under §1031 — a producing royalty can roll into a building, and sale proceeds from a ranch can roll into minerals; the 2018 limitation of §1031 to real property didn't change this. Specialist intermediaries exist for exactly these deals (our directory includes a Dallas firm doing only oil-and-gas exchanges and a Seguin firm built around ranches, easements, and water and mineral rights). The edges — term royalties, water rights, growing crops, equipment sold with a farm — are counsel territory: personal property no longer qualifies, so the allocation on a ranch sale matters.

The Texas market: what exchangers trade

Texas exchange flow follows the state's growth corridors: industrial and logistics around DFW and the I-35/I-45 triangle, multifamily in the four major metros, net-lease retail on every arterial, medical office tracking the hospital systems, and land transitioning at the metro edges — the classic Texas exchange story is the family whose ranch became a suburb, rolling eight figures of land gain into income property without a tax event. No state transfer tax on deeds (another line most states charge that Texas doesn't) keeps friction low. For sellers leaving active management, the same trade increasingly ends in passive replacement property — the decision our comparison guide walks through.

Finding a QI in Texas

Every national intermediary serves Texas, and for a standard delayed exchange of income property, a national firm's scale is a fine answer. In-state firms earn their place on Texas-specific deals: our verified directory includes Texas-based intermediaries from a College Station flat-fee leader (one of only six firms in the country that publish pricing) to the ranch-and-minerals specialists noted above. Use the map's state filter to see who's based here, what each disclosed about bonding and custody, and which states' laws protect you (in Texas: none — verify everything in writing). Fees are the same math everywhere — $750–$1,500 delayed, $3,500–$8,000+ reverse — and a reverse exchange is worth considering in Texas's faster submarkets, where the replacement property you want won't wait for your sale.

Crossing state lines (the California clawback)

Exchanges cross state lines freely — sell in Texas, buy in Florida; sell in California, buy in Texas. One direction carries homework: selling California property into a Texas replacement defers the federal gain, but California's clawback requires annual FTB Form 3840 filings tracking the deferred California-source gain, and if you later sell the Texas property taxably, California collects its share then (the full mechanics are in the California guide). (Several other states have milder versions; Texas, with no income tax, claws nothing when you exchange out.) For the steady stream of California investors repositioning into Texas real estate, the exchange is still usually right — it just comes with a permanent filing habit until the gain dies with the step-up.

A Texas worked example

Same assumptions as the calculator's standard example; methodology per how our numbers work. The $213,350 gap is entirely federal — which is the point: no state income tax doesn't mean no reason to exchange.