State Guides
Texas and Florida: No Income Tax, Other Costs
Neither state taxes the gain, which makes them popular exchange destinations. Both have transfer and recording quirks worth pricing before you sign.
Illustration generated for this article by 1031 Exchange News Today.
Texas and Florida absorb a great deal of exchange money from higher-tax states, for the obvious reason: neither levies a personal income tax, so neither taxes the gain when you eventually sell. That does not make an exchange there costless, and the transactional charges differ more than people expect.
What no income tax actually means
It means that when you finally sell without exchanging, the state takes nothing. Federal capital gains, depreciation recapture and net investment income tax still apply. On a $500,000 gain, avoiding a 5% state tax is worth $25,000, and avoiding California's top rate is worth considerably more.
Texas: cheap to transact, expensive to hold
Texas has no real estate transfer tax, which is unusual and materially reduces closing costs. Recording fees are modest and set by county.
The offset is property tax. Texas funds itself through it, and effective rates well above the national average are normal. An investor comparing a Texas property to one in a state with income tax but lower property tax should model the holding period, not just the exit.
Florida: documentary stamps on everything
Florida charges documentary stamp tax on the deed, generally $0.70 per $100 of consideration, with a different rate in Miami-Dade. On a $2,000,000 purchase that is roughly $14,000.
There is a second documentary stamp on new mortgages, plus intangible tax on the note. Financed purchases therefore carry meaningfully higher closing costs than cash ones.
| Cost | Texas | Florida |
|---|---|---|
| State income tax on eventual gain | None | None |
| Real estate transfer tax | None | About $14,000 in documentary stamps |
| Mortgage documentary stamp | None | $0.35 per $100 of the note |
| Intangible tax on the note | None | $0.20 per $100 |
| Property tax burden | High | Moderate |
| Attorney required at closing | No | No, though commonly used |
Figures are illustrative and set locally; confirm current rates with the county before you model a deal.
What does not change
The 45-day and 180-day deadlines are federal and identical everywhere. What qualifies as like-kind is federal. The requirement that you never take receipt of the proceeds is federal. Choosing a no-income-tax state changes the eventual tax bill and the closing costs, and nothing about the mechanics of the exchange itself.
One practical point on insurance
Both states have had severe property insurance disruption, Florida especially. Insurability now materially affects both financing and value, and an investor identifying a coastal property on day 40 without having priced insurance is taking a risk that has nothing to do with tax.
Disclosure
This article is published by Easy1031, a qualified intermediary with a commercial interest in readers starting an exchange. The rules and mechanics described here are the same whichever intermediary you use. Nothing here is tax or legal advice.
