Does Texas have capital gains tax? Because capital gains tax is considered an income tax, states that don’t have a personal income tax also don’t have capital gains income tax –– Texas just happens to be one of those states. That said, you may still have to pay capital gains tax at the federal level.

While this concept may seem a bit confusing, the wealth managers from Avidian Wealth Solutions are here to answer your questions about the taxes on capital gains in Texas.

What are capital gains taxes?

Capital gains taxes are taxes that you pay on the profit from the sale of an investment asset. These investments include everything from stocks and mutual funds to physical property including boats, vehicles, and real estate. There are two main types of capital gains: long-term capital gains and short-term capital gains.

Long-term capital gains taxes are applied to the sale of assets that have been held for a year or longer. According to federal policy, how much you pay in long-term capital gains tax will depend on your tax bracket/filing status and will be either 0%, 15%, or 20%. On the other hand, short-term capital gains tax is applied to assets that have been held for less than a year and are taxed as per your regular income tax bracket.

As far as capital gains tax on the state level goes, most states will tax capital gains the same way they’d tax your ordinary income meaning that it will vary by state.

What is the capital gains tax rate in Texas?

As previously mentioned, the capital gains tax rate in Texas mimics that of its income tax — or lack thereof. Since the profits made on the sale of investable assets are considered income, you would not have to pay any capital gains tax to the state of Texas.

How do I avoid capital gains tax in Texas?

Avoiding capital gains taxes in Texas specifically isn’t hard to do considering the state doesn’t have any income tax and therefore doesn’t have any capital gains income tax. However, we’re assuming that if you’re asking this question, you’d also like to know how to avoid them at the federal level too. While federal capital gains taxes are unavoidable, there are some tips that you can use to minimize your tax burden.

1. Hold on to assets for longer than a year

The taxes for long-term capital gains tend to be far less than that of short-term capital gains. Keep in mind that this piece of advice may not apply to you if you are a high-net-worth individual as your income tax bracket may be higher than the cap on long-term capital gains tax. To figure out which strategy is best for you, speak with a financial advisor who specializes in high-net-worth financial planning.

2. Make use of tax-advantaged accounts

Examples of tax-advantaged accounts include accounts such as health savings accounts (HSA), donor-advised funds (DAF), 529 college savings accounts, 401(k) plans, and IRAs. Capital gains tax is not applied on investments sold within these accounts, but you will have to pay taxes either before or after adding/removing qualified distributions from the account depending on the type of account.

3. Look into tax-loss harvesting

Tax-loss harvesting is one of many tax reduction strategies specifically used for high-net-worth individuals and families. It involves reconciling investment losses and offsetting capital gains. In other words, it typically involves selling low-performing assets to offset gains made from selling high-performing assets.

Keep reading: How does tax loss harvesting work?

4. Consider hiring a fiduciary financial advisor

The best way to optimize your tax strategy is to hire a fiduciary financial advisor. Together, you can create a strategy to minimize your taxes in several areas of your financial plan including your investments. Not to mention, the benefits you gain by having a trusted partner to seek advice from before selling your assets.

Why a fiduciary vs. broker? Fiduciary financial advisors are legally obligated to act in your best interest. Therefore, you can always rest assured that you’re receiving the best advice for you and your unique financial goals. 

Avidian Wealth Solutions offers efficient high-net-worth tax planning in Houston

Hopefully by now, you’re able to answer the question “does Texas have capital gains tax?” While the state itself doesn’t have capital gains income tax, you are still responsible for paying capital gains tax on the federal level.

If you’re looking to upgrade your tax strategies in the new year, Avidian Wealth Solutions is here to provide you with high-net-worth income tax strategies aimed to help you meet your specific financial goals. Whether you need advice on risk management, tax planning, or investment management in Houston, Avidian’s multidisciplinary team of highly credentialed experts is prepared to meet your financial needs.

To learn more about how we can help with your tax strategy, schedule a meeting with us today!

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