MARKETS / TEXAS / DALLAS
Dallas 1031: deep NNN inventory and zero state income tax
No state income tax; deep NNN and industrial inventory for exchanges
Market overview
Dallas-Fort Worth is the premier NNN and industrial 1031 exchange replacement market in the United States, defined by its combination of no state income tax, a vast inventory of net-leased commercial assets, and deep institutional-grade industrial product along the I-20, I-30, and Alliance corridors. For investors relinquishing appreciated California, Illinois, or New York property, the DFW market represents an opportunity to deploy deferred proceeds into assets that produce higher current yields without the overhang of state income tax on future dispositions. activity in the DFW market is two-directional: a large and growing local investor base is also active, relinquishing appreciated residential rentals and smaller commercial properties and reinvesting in larger NNN or replacement assets.
Typical investor profile
The Dallas 1031 investor is frequently either a local Texas commercial owner aged 52 to 70 relinquishing appreciated DFW property, or an out-of-state investor from California, Illinois, or the Northeast who has identified DFW NNN or industrial assets as replacement property. Local relinquishments often involve suburban office or multifamily assets that have appreciated substantially since the 2010 to 2016 wave of corporate relocations to DFW. Out-of-state replacement buyers focus on NNN fast-food, convenience retail, and industrial, where the yield spread versus their home markets can be 150 to 300 basis points. Deal sizes range from $1 million to $25 million in relinquished proceeds.
Cap rate context
DFW industrial along the major corridors trades at 6.0% to 7.0% as of Q1 2026, offering attractive yields relative to coastal markets. NNN retail with investment-grade tenancy in strong traffic corridors runs 5.2% to 6.2%. Multifamily in suburban DFW trades at 5.5% to 6.5%, having softened from the 2021 peak as new supply absorbed into the market. Office has experienced broader cap-rate expansion; value-add office in downtown Dallas and the Park Cities corridor can trade at 7.0% to 9.0% for opportunistic buyers. offerings targeting DFW industrial and NNN are among the most common in the national market.
State tax considerations
Texas has no state income tax, which means that capital gains from the sale of real property located in Texas are subject only to federal tax: the 20% long-term capital-gains rate, the 3.8% net investment income surtax for higher earners, and up to 25% on . There is no Texas state-level capital-gains tax or clawback mechanism. However, Texas imposes a franchise tax on certain business entities that may apply to LLCs or corporations holding Texas real property, and investors should confirm the entity-level tax treatment with Texas counsel. Texas property taxes are notably higher than in many other states, frequently running 1.8% to 2.5% of assessed value annually, which should be factored into underwriting of replacement assets. Out-of-state investors whose deferred gain originated in California remain subject to California FTB sourcing claims on the deferred gain when the Texas replacement property is ultimately sold, unless further exchanges are executed.
Local 1031 process notes
Dallas County property records with the Dallas County Clerk in downtown Dallas; Tarrant County (Fort Worth) uses the Tarrant County Clerk. Recording typically completes in two to three business days. The DFW market is one of the best-served in the country for , with multiple national and regional platforms maintaining local offices. The is a significant constraint for investors targeting specific NNN assets in DFW, as creditworthy long-term leases attract multiple competing buyers. Investors should identify potential replacement assets before close of the relinquished property and confirm availability with their broker.
Figures are approximate, based on market data as of Q1 2026. Consult your tax advisor regarding your specific situation.