Capital gains tax in Texas (2026): selling a business, real estate or farm
Two constitutional walls, not one
Most no-tax states rely on the absence of a statute. Texas has written the answer into its constitution twice. Article 8, Section 24-a (added November 5, 2019) forbids a tax on the net incomes of individuals, including a partner's share of partnership income. Section 24-b, approved by voters on November 4, 2025, goes further: the legislature may not tax the realized or unrealized capital gains of an individual, family, estate or trust, including a tax on selling or transferring a capital asset that the seller pays. Section 25 (2023) separately bans a wealth tax.
Section 24-b leaves room for property, sales and use taxes, and it protects individuals, families, estates and trusts. It does not exempt corporations or LLCs from the franchise tax, which is why entity sellers still have a Texas number to check.
Worked example: what living in Texas is worth on a $4.4 million sale
A joint-filing couple sells a company in 2026 for a $4,000,000 long-term gain plus $400,000 of equipment recapture. Federal long-term rates for 2026 are 0%, 15% and 20%, with 20% above $613,700 of joint taxable income (Rev. Proc. 2025-32); the federal capital gains guide explains that layer. As Texans, their entire bill is federal: $1,108,842, an effective 25.2%, and they keep $3,291,158.
- Had they closed while still California residents, state tax alone would be $555,539, and the gap is $555,539.
- Had they closed as Illinois residents, Illinois would take $217,800.
Federal tax is the remaining target. Spreading the gain with a Section 453 installment sale can keep more of each year below the 20% bracket, and the net investment income tax analysis shows when an active owner avoids the 3.8% surtax.
The franchise tax: the Texas bill entity sellers forget
If the business is an LLC, corporation, limited partnership or other taxable entity and it sells its assets, the sale year shows up on its franchise tax report. Texas computes margin from total revenue, and when an entity sells an investment or capital asset, only the net gain counts in gross receipts (Tex. Tax Code 171.105(b)). For reports due in 2026 and 2027 the rate is 0.75% of taxable margin, 0.375% for retail and wholesale, and an entity with total revenue at or below $2,650,000 owes no tax (Comptroller, 2026). The EZ computation at 0.331% is available up to $20,000,000 of revenue.
Sole proprietorships, general partnerships owned entirely by natural persons, and passive entities are not taxable entities (Tex. Tax Code 171.0002). A stock or membership-interest sale by the owners is not a sale by the entity, which is one more reason the asset sale versus stock sale choice has a Texas angle.
Moving to Texas before a sale: your old state may still be owed
Texas cannot shield a gain another state already has a claim to. Three patterns cause most surprises:
- Real estate stays where it sits. A California rental or an Illinois warehouse is taxed by that state no matter where the seller lives.
- Notes from a pre-move sale follow the sale. California, for example, keeps taxing installment gain on stock sold while a resident when payments arrive after the seller moves (FTB Pub. 1100). See the California page.
- Timing and proof. Domicile has to change before the binding agreement, backed by a Texas home, driver license, voter registration and where the family actually lives.
The moving-before-the-sale analysis walks through the audit file a departing state will expect.
Ranch and farm land: the rollback tax
Texas has no transfer tax on a deed; Article 8, Section 29 bars any new tax on conveying fee simple title after January 1, 2016. The cost to watch on rural land is property tax. Land appraised on open-space agricultural use that changes use, typically when a developer buys it, triggers an additional tax equal to the difference between the agricultural and market value taxes for each of the three years before the change (Tex. Tax Code 23.55), and a lien attaches on the date of change. Purchase contracts usually assign who pays it; sellers who will carry a note should confirm the lien does not prime their deed of trust. The land sale gains guide covers the federal side.
Estate planning: no Texas death tax
Texas has no state estate tax or inheritance tax, so the choice between selling and holding for heirs is a purely federal comparison. A founder near the end of life may get more from the IRC 1014 basis step-up than from any sale plan; the hold-for-step-up analysis runs that comparison. Get the Big Sale Tax Analysis at /analysis/ to model a cash sale, a note and a 1031 exchange side by side for a Texas seller.
What to know
Zero state tax is not zero tax: federal capital gains rates, recapture at ordinary rates and the 3.8% surtax still apply, and an entity seller may owe a final franchise tax bill. Sellers arriving from another state carry that state's claims on real estate and pre-move sales. A Texas rollback tax lien follows rural land that leaves agricultural use.
Worked example
Married filing jointly, $300,000 of other income, $4,000,000 long-term gain plus $400,000 of equipment recapture, cash in 2026. Identical deal closed before the move, so California taxes the whole gain as ordinary income. Identical deal, Illinois flat rate on the whole gain.
| Engine run | Texas residents sell a company for a $4.4M gain | Same sale while still California residents | Same sale while still Illinois residents |
|---|---|---|---|
| Filing status | Married, joint | Married, joint | Married, joint |
| State | Texas | California | Illinois |
| Other income (wages, pension, interest) | $300,000 | $300,000 | $300,000 |
| Long-term capital gain | $4,000,000 | $4,000,000 | $4,000,000 |
| Section 1245 recapture (ordinary income) | $400,000 | $400,000 | $400,000 |
| Federal income tax on the sale | $941,642 | $941,642 | $941,642 |
| Net investment income tax (3.8%) | $167,200 | $167,200 | $167,200 |
| State income tax on the sale | $0 | $555,539 | $217,800 |
| Total tax caused by the sale | $1,108,842 | $1,664,381 | $1,326,642 |
| Effective rate on the gain | 25.2% | 37.8% | 30.2% |
| Gain kept after these taxes | $3,291,158 | $2,735,619 | $3,073,358 |
Computed October 7, 2026 by the Big Sale Tax engine (engine.js yearTax): federal brackets, 0/15/20% thresholds and AMT from Rev. Proc. 2025-32 (OBBBA-adjusted) and the One Big Beautiful Bill Act (P.L. 119-21); NIIT under IRC 1411 (thresholds not indexed); state tax from the engine's state table (where a state has not yet published 2026 brackets, its 2025 table is used and labeled projected). "Tax caused by the sale" = tax with the sale minus tax without it. Excludes selling costs, local taxes and estimated-tax timing. Education only.
Run your own numbers
2026 law from the engine: federal 0/15/20% brackets (Rev. Proc. 2025-32), 25% cap on unrecaptured 1250 gain, ordinary rates on 1245 recapture, 3.8% NIIT over $200,000 single / $250,000 joint (IRC 1411), AMT, and your state's rules. Tax shown is the tax caused by the sale. Excludes selling costs, local taxes and NIIT exceptions for active business owners. Education only.
Long-Term vs Short-Term Capital Gains (2026)
The one-year holding rule, the 2026 0/15/20% thresholds for every filing status, NIIT, recapture, the state layer and a worked $200,000 example: 11 months vs 13 months, and what spreading the gain can save.
Frequently asked questions
Does Texas have a capital gains tax?
When you sell a house in Texas, do you pay capital gains tax?
How much is capital gains tax on land in Texas?
What did the 2025 Texas capital gains tax ban do?
Does the Texas franchise tax apply when I sell my business?
Can I move to Texas to avoid state capital gains tax?
Sources
- Texas Constitution Art. 8 (Secs. 24-a, 24-b, 25, 29)
- Texas Tax Code ch. 171 (franchise tax)
- Texas Comptroller: Franchise tax rates and thresholds
- Texas Tax Code ch. 23 (Sec. 23.55 rollback tax)
- California FTB Pub. 1100 (taxation of nonresidents)
- IRC 121 (Cornell LII)
- Rev. Proc. 2025-32 (2026 federal brackets)
Figures as of October 7, 2026; each rate and limit above names its source and year. Education only, not legal or tax advice.
Keep reading
Moving states before a sale
Becoming a resident of a no-income-tax state before you sell can remove state tax on some gains, but only for the right asset, with the right timing and a real
ReadInstallment sale (Section 453)
Report the gain as the buyer pays you instead of all in the year of sale, under rules that have been in the tax code for decades.
ReadAsset sale vs stock sale
Buyers want assets for the step-up, sellers want stock for one layer of capital gain; here is how the difference is measured and priced.
ReadLand sale
Raw land has no depreciation to recapture, so the big question is whether the IRS sees you as an investor or a dealer.
ReadCalifornia
No capital gains rate, a 1% surcharge over $1M, its own depreciation and QSBS rules, and a long reach after you move.
ReadStep-up at death (hold)
Holding an appreciated asset until death can erase the built-in gain for heirs; here is when that beats selling now and when it does not.
ReadKnow your number before you sign.
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