Cost Segregation in Texas

Zero state income tax, massive population growth, and a diversified economy anchored by energy, tech, and defense — Texas lets investors keep every dollar of federal cost segregation savings with no state tax clawback.

Population
30.5M
Median Home
$310K
Property Tax
1.60%
3rd highest in U.S.
State Income Tax
0%
None
Bonus Depreciation
Partial
State Conformity
Avg. Insurance
$3,500
52% above average
Tax Strategy

Cost Segregation & Tax Rules in Texas

Understanding how federal and Texas state tax rules interact is critical to maximizing your cost segregation benefits.

Cost Seg Overview
State vs. Federal Rules
Tax Landscape
Median Home Price
$310K
Building Value
75%
of purchase price
Cost Seg Range
25-40%
of building reclassified
Median Home Age
24 yrs
Built ~2000
What Gets Reclassified

A cost segregation study identifies building components that can be depreciated over 5, 7, or 15 years instead of the standard 27.5 or 39 years. In Texas, typical reclassification rates are 25-40% of building value.

Common Property Types
Single-Family DetachedTownhomesRanch-Style HomesSmall Multi-Family (2-4 units)
Texas's large, newer housing stock has well-defined building components that make cost seg studies efficient and cost-effective. The zero state income tax means your entire ROI comes from federal savings — typically 5-8x the study cost in Year 1.
Overline Study Cost & ROI
Overline Study Cost
$499 - $2,000
Avg. ROI
10-40x

The math: A $310K property with 75% building value and 30% reclassification yields ~$26K in Year 1 federal tax savings at the 37% bracket — significantly more ROI than traditional studies costing $5,000-$10,000+.

Housing Stock Advantage

With a median build year of 2000, Texas's housing stock has identifiable components (HVAC, electrical, plumbing, landscaping) that are strong candidates for accelerated depreciation.

N/A — No State Income Tax
Texas Bonus Depreciation Conformity

Because Texas has no state income tax, there is no state-level depreciation deduction or conformity issue. Federal bonus depreciation under Section 168(k) applies in full and there is no state tax return to worry about.

What This Means for Your Investment: Texas is one of the most favorable states for cost segregation. Your entire tax benefit comes from federal savings, with zero state-level complications. No addback, no phase-out, no conformity issues — just clean, immediate federal deductions.

Federal vs. TX Depreciation Timeline
PeriodFederal TreatmentTX State Treatment
Year 1100% bonus depreciationN/A — No state income tax
Years 2+Standard MACRS schedulesN/A — No state income tax
Section 179 Expensing
State ConformityLimited

No state income tax means Section 179 operates at the federal level only in Texas. With no state tax to offset, TX investors maximize their retained cash flow — the trade-off is higher property taxes that make cost seg studies even more critical for net returns.

Key Takeaway

A $350K property with a $262,500 depreciable basis and 30% cost seg reclassification yields ~$29,138 in federal tax savings in Year 1. Because Texas has no state income tax, your total Year 1 savings = $29,138 with zero state tax friction.

Bottom Line

Texas is the simplest state for cost segregation planning. No state income tax = no state depreciation deductions = no conformity issues. Your entire savings are federal, and they are immediate and unreduced.

Eff. Property Tax
1.60%
3rd highest in U.S.
Transfer Tax
None — Texas has no transfer tax or documentary stamps
State Income Tax
0%
None
Property Tax Details

Property taxes are the primary revenue mechanism in Texas. Rates vary significantly by county and school district. Harris County (Houston) averages ~1.60%, Travis County (Austin) ~1.68%, Dallas County ~1.85%. Homestead exemptions available for primary residences.

Assessment Methodology
MethodMarket value (100% of appraised value)
Reassessment CycleAnnually
Assessment BodyCounty Appraisal District (CAD)
Appeal WindowMay 15 or 30 days after notice (whichever is later)
Appeal Success Likelihood
Very High
LowModerateGoodVery High

Texas has the most active property tax appeal market in the U.S. — over 50% of protests in major counties result in reductions. With no state income tax, property taxes are the primary revenue source, leading to aggressive valuations. ARB (Appraisal Review Board) hearings are free and informal. Binding arbitration and district court are available for larger properties.

Work with Overline — Our team helps Texas investors identify over-assessed properties and file tax appeals. A successful appeal can save thousands annually and compounds your cost seg savings.

Illustrative Example

Cost Seg Example for Texas

This example assumes a purchase eligible for 100% bonus depreciation. All factors below are based on averages from our historical cost segregation studies for TX properties. To see your exact savings, run a property-specific cost seg analysis below.

Typical Texas Property Details
$
50%95%
5%35%
2%25%
Total Reclassified30% of building
10%37%
Estimated Year 1 Tax Savings
Building Value$262,500
$350,000 x 75%
Normal Annual Depreciation$9,545
$262,500 ÷ 27.5 yr (residential)
5-Year Reclassified$47,250
15-Year Reclassified$31,500
Total Accelerated$78,750
30% of $262,500 building value
Federal Tax Savings (Year 1)$29,138
$78,750 x 37% bracket
Total Year 1 Tax Savings$29,138
8.3x normal annual deduction captured in Year 1

TX State Tax: Texas is one of the most favorable states for cost segregation. Your entire tax benefit comes from federal savings, with zero state-level complications. No addback, no phase-out, no conformity issues — just clean, immediate federal deductions.

Depreciable Basis

Land vs. Building Value in Texas

The land-to-building ratio directly impacts your cost segregation benefit — only the building portion is depreciable. Here is how Texas breaks down by region.

Statewide Average
Building (Depreciable)75%
Land (Non-Depreciable)25%
75%
Depreciable Basis
Breakdown by Region
Houston Metro
78% Building

Sprawling metro with abundant land keeps building ratios strong, especially in suburbs like Katy and Sugar Land.

Dallas-Fort Worth
78% Building

Rapid suburban expansion in Frisco, McKinney, and Allen maintains healthy building ratios despite appreciation.

San Antonio Metro
80% Building

Military presence and affordable land create excellent building-to-value ratios across the metro.

Austin Metro
70% Building

Tech boom has driven up land values significantly. Suburban areas (Round Rock, Cedar Park) offer better ratios.

Rural/West Texas
90% Building

Very low land costs create exceptional cost seg ratios, though rental markets are smaller.

Investor Takeaway

Houston, Dallas, and San Antonio offer the best cost seg fundamentals with 78-80% building values. Austin's tech-driven land appreciation reduces depreciable basis — target suburbs like Round Rock or Georgetown for better building ratios.

Insurance & Risk

Insurance Landscape in Texas

Insurance costs directly impact your cash flow. Understanding Texas's risk profile helps you budget accurately and avoid coverage gaps.

Avg. Annual Premium
$3,500
52% above average
National Average
$2,300
for comparison
Premium Trend
Rising 10-15% annually, driven by severe storm and hail claims
Primary Risk Drivers
1
Hurricanes & Tropical Storms
Gulf Coast counties (Houston, Galveston, Corpus Christi) face direct hurricane risk. Hurricane Harvey (2017) caused $125B in damages.
2
Hail & Tornadoes
North Texas (Dallas-Fort Worth) sits in Tornado Alley. Hail claims are the #1 insurance cost driver statewide with multiple billion-dollar hail events annually.
3
Flooding
Houston floods repeatedly. Flash flooding from severe storms affects most major metros. Flood insurance is separate and essential in many areas.
Coverage Recommendations
Wind/hail coverage with separate deductible (typically 1-2% of dwelling) — critical in North Texas
Flood insurance essential in Houston, coastal areas, and low-lying zones (separate NFIP or private policy)
Named storm deductible for Gulf Coast properties (2-5% of dwelling coverage)
Umbrella liability policy ($1M+) for rental properties given storm-related liability
Cost Seg + Insurance Connection

Texas's high insurance costs make accurate building valuation essential. A cost segregation study provides component-level documentation that supports precise replacement cost estimates — helping you avoid both over- and under-insurance while substantiating claims after storm damage.

Market Fundamentals

Economy & Housing Demand in Texas

Strong economic engines create stable rental demand. Here is what drives Texas's economy and housing market.

State GDP
$2.4T
Growing 3.5%/year
Unemployment
3.9%
Below national average
Median Income
$73,000
+20.5% over 5 years
Pop. Growth (1Y)
+1.6%
+475,000/year net migration
Major Industries
Energy & Oil/Gas14%
Houston is the energy capital of the world. ExxonMobil, Chevron, Phillips 66, ConocoPhillips, and hundreds of service companies are headquartered here.
Technology13%
Austin is a top-5 tech hub with Tesla, Apple, Google, Meta, Oracle, Samsung, and Dell. DFW's tech corridor is growing rapidly.
Healthcare12%
Texas Medical Center (Houston) is the world's largest. MD Anderson, Baylor, UT Southwestern (Dallas), and Methodist are world-renowned systems.
Military & Defense10%
Fort Cavazos (formerly Hood), Fort Bliss, Joint Base San Antonio (Lackland, Randolph, Sam Houston), and NASA Johnson Space Center.
Finance & Insurance9%
Dallas-Fort Worth is a financial services hub with AT&T, Charles Schwab, State Farm, USAA (San Antonio).
Key Economic Engines
Houston: Energy capital of the world + the world's largest medical center (106K+ employees)
Dallas-Fort Worth: Corporate relocation magnet with 24 Fortune 500 HQs, more than any other
Austin: Tesla Gigafactory, Apple's $1B campus, Samsung fab — Silicon Hills continues to boom
San Antonio: Joint Base SA (80K+ military/civilian) + USAA (35K employees) + thriving tourism
Housing Demand Signals
5-Year Pop. Growth
+9.5%
Housing Permits YoY
+6.8%
Median Days on Market
35 days
Months of Inventory
2.8
Migration: Corporate relocations (California, Illinois, New York), no state income tax, lower cost of living, and job growth attract the most domestic in-migration of any state.
Construction: Wood frame with brick veneer, Stucco exterior (South/West TX), Slab-on-grade foundation, Pier and beam (older Houston/Austin areas)
Landlord & STR Rules
Landlord Friendliness
Very Friendly
Eviction Timeline
21-30 days
Rent Control
Prohibited statewide (Texas Local Government Code § 214.902)
STR Regulation
Minimal

Texas has no state-level STR ban. Regulation is at the city/county level. Austin has the most restrictive STR rules (Type 2 non-owner-occupied STRs phased out in some zones). Houston, Dallas, and San Antonio are generally permissive.

Local Markets

Top Cities for Investors in Texas

Explore city-level cost segregation data, sample deals, and investment fundamentals for each major market in Texas.

Houston, TX
#1 Metro Job Growth
Median Home
$320K
Rent (3BR)
$1,750
Property Tax
1.60%
Avg. Insurance
$3,800/yr
Est. Year 1 Tax Savings$28K+
View Houston Details
Dallas, TX
#1 Corporate Relocations
Median Home
$380K
Rent (3BR)
$2,100
Property Tax
1.85%
Avg. Insurance
$3,200/yr
Est. Year 1 Tax Savings$33K+
View Dallas Details
San Antonio, TX
Military City USA
Median Home
$275K
Rent (3BR)
$1,550
Property Tax
1.55%
Avg. Insurance
$2,800/yr
Est. Year 1 Tax Savings$23K+
View San Antonio Details
Austin, TX
Silicon Hills
Median Home
$480K
Rent (3BR)
$2,300
Property Tax
1.68%
Avg. Insurance
$2,600/yr
Est. Year 1 Tax Savings$40K+
View Austin Details
Local Partners

Investor-Friendly Partners in Texas

We are building a curated directory of top investor-friendly brokers, property management companies, and service providers in Texas.

Investor-Friendly Brokers

Top real estate agents who specialize in investment properties and understand cost segregation, 1031 exchanges, and cash-flow analysis.

Coming Soon
Property Management

Vetted property managers who handle tenant screening, maintenance, and rent collection for both long-term and short-term rentals.

Coming Soon
Insurance Agents

Independent insurance agents who specialize in rental property coverage and can leverage cost seg data for accurate replacement cost estimates.

Coming Soon

Are you a broker, property manager, or insurance agent serving investors in Texas?

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Frequently Asked Questions

Cost Segregation FAQ — Texas

Does Texas conform to federal bonus depreciation?

−

Because Texas has no state income tax, there is no state-level depreciation deduction or conformity issue. Federal bonus depreciation under Section 168(k) applies in full and there is no state tax return to worry about.

What is the property tax rate in Texas?

+

The effective property tax rate in Texas is 1.60%, ranked 3rd highest in U.S. in the U.S. Property taxes are the primary revenue mechanism in Texas. Rates vary significantly by county and school district. Harris County (Houston) averages ~1.60%, Travis County (Austin) ~1.68%, Dallas County ~1.85%. Homestead exemptions available for primary residences.

How much can I save with cost segregation in Texas?

+

A $350K property with a $262,500 depreciable basis and 30% cost seg reclassification yields ~$29,138 in federal tax savings in Year 1. Because Texas has no state income tax, your total Year 1 savings = $29,138 with zero state tax friction.

What are the typical cost segregation reclassification rates in Texas?

+

In Texas, typical cost segregation studies reclassify 25-40% of building value into accelerated depreciation categories (5-year, 7-year, and 15-year property). Overline studies cost $499-$2,000 with 10-40x ROI.

What is the average insurance cost for rental properties in Texas?

+

The average annual homeowner insurance premium in Texas is $3,500, which is 52% above average the national average of $2,300. Key risk drivers include Hurricanes & Tropical Storms and Hail & Tornadoes.

What is the state income tax rate in Texas?

+

Texas has a state income tax rate of 0% (None). Texas has no state income tax (enshrined in the state constitution). This means 100% of your cost segregation benefits come from federal savings with zero state-level tax friction or addback requirements.

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