USA – TEXAS Law and Practice Contributed by: Taylor Cooksey, David Brooks, Serena Kramer and Philip Kinkaid, Cokinos | Young
8.3 Municipal Taxes There are no specific statewide “municipal taxes” in Texas that are considered taxes on the occupation of business premises, such as an occupancy tax tied directly to leasing or using commercial property. How - ever, annual property taxes are payable with respect to real estate in Texas, except where certain exemptions may apply. These taxes are typically paid by the prop - erty owner but can be passed on to tenants through lease agreements. In addition, property owners may be subject to other assessments and fees, including property owners’ association assessments, Municipal Utility District (MUD) taxes, Public Improvement Dis - trict (PID) assessments, impact fees and emergency services district taxes. Applicability of these fees and assessments varies by location. 8.4 Income Tax Withholding for Foreign Investors Texas does not have a state income tax, so there is no state-level income tax withholding for foreign investors (or anyone else) on income derived from real property or other sources within the state. However, foreign investors in Texas are subject to federal income tax rules under US law, including those that apply to income earned in Texas, such as rental income or gains from the sale of real property, because federal tax obligations extend nationwide.
8.5 Tax Benefits Owning real estate in Texas offers several tax benefits, primarily due to the state’s lack of a state income tax and federal tax provisions that apply nationwide. The lack of a state tax amplifies the impact of federal tax benefits, including by increasing the after-tax return on real estate investments compared to states with income taxes. In Texas, real estate owners can benefit from certain property tax deductions and exemptions. For home - owners, this includes the homestead, over-65 and disabled exemptions, which can reduce the taxable value of the primary residence; for landowners, it includes the agricultural special appraisal valuation. There is a residence homestead exemption for surviv - ing spouses of veterans who died from service-related conditions, and a temporary exemption for fire-dam - aged homestead improvements. Local governments may also offer temporary tax abatements to encour - age development or business relocation, benefitting commercial property owners. Up to USD125,000 of business personal property (including inventory) is exempt from property taxes. Federal deductions for property taxes, mortgage inter - est, operating expenses and depreciation are also available, as is potentially qualifying for a Section 1031 “like-kind” exchange to defer capital gains tax when investing proceeds into another property.
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