Every state taxes investors differently. Here is how Texas treats capital gains at the top rate, the marriage penalty, estate and inheritance tax at death, municipal-bond interest, the §1202 QSBS exclusion, and a harvested loss — a plain reference to the state's tax code.
Texas levies no state income tax on capital gains; no state death tax; community-property step-up (a full basis step-up at the first death).
Texas has no state income tax, constitutionally restricted, and pairs a strong homestead exemption with a community-property regime — so community assets receive a full basis step-up at the first spouse's death. Property and sales taxes carry more of the state's revenue.
Income & gains0%
No state tax on capital gains — and a harvested loss is worth only the federal rate here.
No state income tax — no marriage penalty on the state return.
Summary of state law — primary-source citation in progress. State income-tax filing schedules, tax year 2025 — verify with a tax advisor.
Death
No state estate or inheritance tax — only the federal estate tax applies.
Summary of state law — primary-source citation in progress. State estate/inheritance statutes, tax year 2025 — confirm with counsel.
Munisexempt
Municipal-bond interest is exempt from state tax whether the issuer is in-state or out-of-state — the broadest muni preference (states with no tax on investment income, plus a few that exempt all munis by statute).
Summary of state law — primary-source citation in progress. State income-tax statutes on municipal-bond interest, tax year 2025 — verify with a tax advisor.
QSBSno §1202
No distinct state QSBS position applies here — either the jurisdiction levies no tax on the gain, or it does not separately recognize the §1202 exclusion. Confirm with a tax advisor.
Summary of state law — primary-source citation in progress. State IRC-conformity statutes on §1202, tax year 2025 — verify with a tax advisor.
Losses
No state tax on capital gains, so a harvested loss carries no state benefit; its value here is only the federal offset.
Summary of state law — primary-source citation in progress. State capital-loss carryforward rules, tax year 2025 — verify with a tax advisor.
Basis step-upCP
Community-property state: BOTH halves of community property step up to fair market value at the first spouse's death (IRC 1014(b)(6)) — a major basis advantage.
Summary of state law — primary-source citation in progress. State marital-property law / IRS Pub. 555; IRC 1014 — verify with counsel.
Frequently asked — 7 on Texas
How are capital gains taxed in Texas?
No state tax on capital gains — and a harvested loss is worth only the federal rate here.
Does Texas have a state estate or inheritance tax?
No state estate or inheritance tax — only the federal estate tax applies.
Is there a marriage penalty in Texas?
No state income tax — no marriage penalty on the state return.
How does Texas tax municipal-bond interest?
Municipal-bond interest is exempt from state tax whether the issuer is in-state or out-of-state — the broadest muni preference (states with no tax on investment income, plus a few that exempt all munis by statute).
Does Texas follow the federal QSBS (§1202) exclusion?
No distinct state QSBS position applies here — either the jurisdiction levies no tax on the gain, or it does not separately recognize the §1202 exclusion. Confirm with a tax advisor.
What happens to a capital loss you carry forward in Texas?
No state tax on capital gains, so a harvested loss carries no state benefit; its value here is only the federal offset.
How much is careful tax coordination worth in Texas?
Coordinating how a portfolio is built and run against Texas's rules is worth an estimated ~$37,000/yr for every $1M of taxable assets in our modeling — about +3.7%/yr after tax (a concentrated, naive book keeps ~2.7%/yr vs ~6.3%/yr tax-managed). Your actual figure depends on your holdings — the diagnostic computes it.
What careful tax management can change
Tax law is only half the picture. How a portfolio is
built and run — where each holding sits, how losses are used, how gains are timed — decides how
much of Texas's tax code you actually pay. An illustrative estimate for a portfolio here:
~$37,000/yr per $1M taxable
Illustrative after-tax coordination opportunity in Texas what running the portfolio against Texas's rules can be worth — about +3.7%/yr modeled, as a tax-managed book keeps ~6.3%/yr after tax vs ~2.7%/yr for a concentrated, naive one; illustrative, over ~30 years, scales with the portfolio
How this is modeled: a single 30-year proxy-spliced path (1996–2026), comparing a
concentrated, high-turnover book with a tax-managed one — illustrative and coarse; treat it as
directional, not a precise figure.
Asset location
The bridge between how you invest and how the household is structured — placing the higher-turnover strategy in Roth and Traditional accounts, where its short-term gains escape tax entirely. Coordination itself; quantified for each household in the After-Tax Review.
Patient trading and lot selection
Holds positions through short-term noise and chooses which lots to sell, turning gains that would be taxed as ordinary income into long-term gains taxed roughly 17 points lower.
Loss harvesting
Realizes losses and applies them against the highest-taxed gains first — capturing a spread a simple buy-and-hold fund never reaches.
How to think about Texas
Five lenses turn Texas's tax environment into a household decision — the same lenses every state is read through, so any two states weigh on identical terms.
Rate pressure
No state tax on gains — every realized gain keeps its full federal-only outcome.
Estate exposure
No state estate or inheritance tax — only the federal estate tax reaches the estate.
Harvesting leverage
With no state tax on gains, a harvested loss recovers only its federal value — the state adds no rate for it to offset.
Mobility value
Already a no-income-tax, no-estate-tax state — the destination other households move toward, not from.
Basis coordination
Community-property state: community assets get a FULL step-up at the first death — title them so the survivor keeps that basis.
Coordination priorities for Texas households
Asset titling for step-up· with your estate attorney
Titling assets to capture the fullest basis step-up the marital-property regime allows at the first death.
What should happen next
estate attorneyTitle (or elect the trust) to capture the fullest first-death basis step-up the regime allows.
See the figure on your own Texas portfolio.
The personalized diagnostic computes your after-tax, asset-location, and harvesting picture — by bracket and holdings.
State law reflects 2025 tax-year law; last reviewed 2026-07-07. Every classification is a summary of state law; where a primary-source citation has been verified, it is linked on the card.
What changed
2026-07-07 — First law-review date and honest per-cell source labeling; primary-source citations verified for Illinois, California, New York, Texas, and Florida (more in progress).
2025 — Washington's 7% (+2.9%) excise on long-term capital gains reflected (enacted 2022).
2025 — New Hampshire's Interest & Dividends tax reflected as fully repealed, effective 2025.
2025 — Illinois estate-tax detail tracks the pending SB 2970 as of the review date.
Illustrative / hypothetical — not a real track record and not advice. The tax-management impact figure is a hypothetical, after-tax result from the retroactive application of a tax-management model to ~30 years of proxy-spliced market data on a single illustrative path; no client capital was invested, and hypothetical performance does not guarantee future results. Intended for sophisticated investors; it may not be relevant to your situation, and your actual figure depends on your own holdings, basis, and bracket. State tax facts reflect tax year 2025 and can change — confirm with a tax advisor. Driftwood Wealth is a registered investment adviser; Form ADV and Form CRS are available at adviserinfo.sec.gov.
DRIFTWOOD WEALTH · AUSTIN, TEXAS · FOUNDED 2024MODEL DATA AS OF JULY 2026 · FORM ADV & CRS AT ADVISERINFO.SEC.GOV
Driftwood. State tax law reflects 2025 tax-year law; last reviewed 2026-07-07.