No-state-tax 1031 markets: TX, FL, NV, WA mechanics

When a California, New York, or Oregon investor executes a Section 1031 exchange and selects a replacement property in Texas, Florida, Nevada, or Washington, one of the secondary motivations is often eliminating future state capital gains exposure. These four states impose no personal income tax -- meaning eventual gain recognized on a future taxable sale of the replacement property will be subject only to federal tax, not state tax.

The savings can be material. California's top capital gains rate is 13.3% (the same rate as ordinary income). A $2 million gain recognized in Texas rather than California saves $266,000 in state tax. For investors who expect continued appreciation on replacement property and are planning for an eventual taxable exit, the state of situs is a meaningful variable.

State	Personal Income Tax on Capital Gains	Real Estate Transfer Tax	Other Considerations
Texas	None. Texas has no personal income tax. Constitutional prohibition under Article 8, Section 24.	None at state level; minor county recording fees apply	Property tax rates among the highest nationally (1.5-2.5% of assessed value); no homestead exemption for non-residents on investment property
Florida	None. Florida has no personal income tax. Constitutional prohibition under Article 7, Section 5.	Documentary stamp tax of $0.70 per $100 of consideration on deed transfers	Intangible tax on notes at $0.002 per dollar applies to new mortgages; no ongoing state capital gains on rental income
Nevada	None. Nevada has no personal income tax. Constitutional prohibition under Article 10, Section 1.	Real property transfer tax at $1.95 per $500 of value; additional county surcharges in Clark County	Strong asset protection statutes; favorable LLC charging order law; proximity to California without California income tax exposure
Washington	7% capital gains tax on gains above $250,000 annually -- but real estate gains are specifically exempt from this tax (upheld by state Supreme Court 2023).	Real estate excise tax (REET) graduated up to 3% on sales above $3 million	Real estate gains exempt from the 7% capital gains tax; REET applies at closing but is a one-time cost, not an ongoing income tax

Source: State revenue department publications; Tax Foundation 2025 State Tax Competitiveness Index; industry practice

Texas mechanics for out-of-state 1031 buyers

Texas has no state personal income tax -- a fact written into the Texas Constitution -- and no state capital gains tax. A 1031 investor from California who replaces into a Texas property and eventually sells it in a taxable transaction pays federal capital gains tax only, not state tax.

The offset to consider is Texas property tax. Texas funds its public services primarily through property taxes rather than income taxes, and effective rates for commercial investment property typically run 1.5% to 2.5% of assessed value annually. On a $2 million NNN property, that is $30,000 to $50,000 per year in property tax. Modeling the net return after property tax is essential before assuming Texas replacement properties are simply better than California ones.

Industrial and net-lease NNN properties in Dallas and Houston trade at cap rates of 5.5-7.0% as of early 2026, versus California coastal markets at 4.0-5.5% for comparable assets. The cap-rate premium partially offsets the property tax burden in the annual cash flow calculation.

Out-of-state buyers should note that Texas does not have a deed-recordation tax, a transfer tax, or a mortgage registration tax. Transaction costs at closing are lower than in most other major markets.

Florida mechanics for out-of-state 1031 buyers

Florida's prohibition on personal income tax is also constitutional (Article 7, Section 5). Like Texas, Florida has no capital gains tax on real estate gains. The documentary stamp tax -- $0.70 per $100 of consideration on deed transfers -- is a one-time closing cost, not an ongoing tax.

Florida applies an intangible tax on new mortgage notes at $0.002 per dollar of face value. On a $1 million mortgage, this is $2,000 at origination. This is sometimes confused with a recurring tax; it is not.

Florida markets popular with 1031 buyers include the greater Miami area, Orlando, and Tampa. Industrial and multifamily cap rates in Florida run 4.5-6.5% depending on submarket and asset class. South Florida coastal submarkets command cap-rate compression comparable to California coastal markets, while Central Florida logistics and distribution assets offer higher yields.

Nevada mechanics for out-of-state 1031 buyers

Nevada's constitutional prohibition on income tax (Article 10) makes it a popular replacement-property state for California sellers, partly because of geographic proximity. Las Vegas commercial real estate is accessible by car from Southern California, which simplifies due diligence logistics.

Nevada's real property transfer tax is $1.95 per $500 of value at the state level, with additional county surcharges. Clark County (Las Vegas) adds $0.60 per $500, bringing the effective rate to $2.55 per $500 (0.51% of value) on major transactions. This is lower than California's documentary transfer tax.

Nevada has the most favorable LLC charging order protection statutes in the western United States, which is relevant for investors who hold replacement property in a single-member LLC structure.

Washington: the real estate carve-out matters

Washington is a special case. The state enacted a 7% capital gains tax in 2022 on long-term capital gains above $250,000 annually. The Washington State Supreme Court upheld the tax in March 2023. Investors who heard "no income tax in Washington" and assumed capital gains on real estate were exempt need to understand the carve-out.

The carve-out is explicit: gains from the sale of real estate are specifically excluded from Washington's capital gains tax. The 7% tax applies to gains from the sale of stocks, bonds, and other financial instruments -- not real property. An investor who sells Washington commercial real estate at a gain owes federal capital gains tax but owes no Washington state capital gains tax on that gain.

The Washington real estate excise tax (REET) does apply at closing. The REET is a graduated rate: 1.1% on amounts up to $500,000, 1.28% on amounts from $500,000 to $1.5 million, 2.75% on amounts from $1.5 million to $3 million, and 3.0% on amounts above $3 million. For a $2 million property, the REET is approximately $36,000 -- a one-time transactional cost, not a recurring tax.

Seattle-area commercial real estate offers cap rates of 4.5-6.0% on industrial, multifamily, and office-adjacent assets. The REET is the primary state-level transaction cost for 1031 investors, and it should be modeled in the replacement-property acquisition cost.

California clawback and multi-state planning

Selecting a no-state-tax replacement property does not eliminate California's reach on the originally deferred California gain. California Revenue and Taxation Code Section 18032 requires California tax on the California-source portion of the gain when eventually recognized, regardless of where the replacement property is located. See the companion article on California's clawback rules for the full mechanics.

The combination of a no-state-tax replacement property plus a hold-until-death strategy eliminates both the California clawback and the state capital gains exposure in the replacement state: the step-up in basis at death eliminates the deferred California gain, and the replacement state imposes no income tax on the heirs' subsequent sale.

Consult a tax advisor licensed in both California and the replacement state before closing any interstate 1031 exchange. State sourcing rules and filing obligations are not uniform.