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.

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)
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 (upheld by state Supreme Court 2023).	Real estate excise tax (REET) graduated up to 3% on sales above $3 million	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.

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, a one-time cost, not a recurring tax.

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.

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.

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, at graduated rates reaching 3.0% on amounts above $3 million. For a $2 million property, the REET is approximately $36,000, a one-time transactional cost rather than a recurring tax. 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 exposures: 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.