Does Texas Have a Capital Gains Tax?

Selling assets like stocks or property involves navigating complex tax rules that vary by state. These tax implications influence investment strategies and the net profit from a sale. This guide clarifies the tax landscape for those in Texas.

The Texas Position on Capital Gains Tax

Texas is one of a handful of states that does not impose a personal income tax on its residents. Consequently, the state does not have its own capital gains tax. This policy is rooted in the Texas Constitution, which contains provisions that restrict the legislature from enacting a personal income tax without direct approval from a statewide voter referendum.

The absence of a state income or capital gains tax makes Texas an attractive location for investors and individuals with significant assets. This tax-friendly environment is a feature of the state’s fiscal policy, directly impacting the after-tax returns on investments for its residents.

Further cementing this policy, Texas voters in November 2025 will decide on a proposed constitutional amendment that would prohibit the legislature from imposing taxes on an individual’s or family’s net worth or on the profits from selling capital assets.

Federal Capital Gains Tax Obligations

While Texas does not levy a capital gains tax, its residents are still subject to federal tax laws from the Internal Revenue Service (IRS) on profits from the sale of capital assets. A capital asset includes items like stocks, bonds, and real estate. The profit, or “gain,” is calculated by subtracting the asset’s original purchase price, or cost basis, from the sale price.

Federal law distinguishes between two types of capital gains based on the holding period of the asset. Short-term capital gains result from selling an asset held for one year or less and are taxed at an individual’s ordinary income tax rates, which can range from 10% to 37% depending on their total taxable income.

Gains from assets held for more than one year are classified as long-term capital gains and receive more favorable tax treatment. For the 2025 tax year, these gains are taxed at federal rates of 0%, 15%, or 20%, determined by the taxpayer’s filing status and taxable income. The 0% rate applies to single filers with taxable income up to $48,350 and married couples filing jointly with income up to $96,700. The 15% rate applies to single filers with income between $48,351 and $533,400 and married couples filing jointly with income between $96,701 and $600,050. The 20% rate is for single filers with income over $533,400 and married couples filing jointly with income over $600,050.

High-income earners may also be subject to the Net Investment Income Tax (NIIT). This is an additional 3.8% federal tax on investment income, including capital gains, for individuals with a modified adjusted gross income over $200,000, or $250,000 for married couples filing jointly.

Understanding the Texas Franchise Tax

It is a common misconception that Texas is entirely free of business-related taxes. The state levies a franchise tax on most business entities for the privilege of doing business in Texas. This is not an income tax but a tax calculated on a business’s “margin.” Taxable entities include corporations, limited liability companies (LLCs), partnerships, and other legal entities that receive liability protection under state law.

The franchise tax calculation is based on a company’s total revenue, which is then reduced by one of several available deductions:

• Cost of goods sold
• Compensation
• A standard $1 million deduction
• 30% of total revenue

The resulting margin is then taxed at a rate of 0.75% for most businesses, with a lower rate of 0.375% for qualifying wholesale and retail entities. There is a revenue threshold of $2.47 million, and businesses with annualized total revenue at or below this amount are not required to pay the tax or file a report.

For business owners, this means the sale of business assets could have tax consequences under the franchise tax system. While an individual selling personal stock holdings would not be subject to this tax, a corporation or LLC selling a significant asset would need to account for the revenue in its franchise tax calculation.