Texas has no personal income tax and its Franchise Tax (the "Margin Tax") is calculated on gross receipts, not net income. Depreciation is not a line item in any of the three Margin Tax deduction formulas (COGS, compensation, or 30% of revenue). For every entity type — sole proprietor, LLC, S-corp, partnership, or C-corp — the federal §168(k) deduction flows through with zero Texas add-back. Compare Texas to every other jurisdiction in our all-50-states conformity guide.
Modeled on a $150,000 federal §168(k) deduction on a Texas STR property.
Why Texas Individuals Take the Full Federal Deduction
Texas is one of nine US jurisdictions with no personal income tax. Article VIII, Section 1(a) of the Texas Constitution allows the legislature to tax "occupations" and business franchises but has never authorized a general income tax on natural persons. A 2019 constitutional amendment further raised the bar: any future personal income tax would require both a two-thirds legislative supermajority and a statewide voter referendum. As a practical matter, no state-return depreciation modification exists for Texas STR investors.
This puts Texas in the same practical position as Florida, Nevada, Washington, and the other no-income-tax states for individual STR investors: the Year-1 §168(k) write-off you claim on your federal Schedule E is exactly what you keep. There is no Texas return that reflects rental income or depreciation.
The Texas Margin Tax — Why It Doesn't Affect §168(k)
Texas's Franchise Tax, universally known as the Margin Tax, applies to formal business entities under Tex. Tax Code Ch. 171. The tax is not levied on federal taxable income; it is levied on "Taxable Margin," calculated as Total Revenue minus one of three deductions chosen by the taxpayer: (1) cost of goods sold, (2) compensation paid, or (3) 30% of Total Revenue. Depreciation is not deducted in any of the three formulas.
The result: a bigger §168(k) deduction has no effect on the Margin Tax owed. Whether an STR entity claims $150,000 in bonus depreciation or zero, the Margin Tax calculation is identical. This is fundamentally different from a state like Virginia or Iowa where the corporate or individual income tax uses federal taxable income as the starting point and then modifies for §168(k) via an add-back.
Second layer of protection for the vast majority of individual STR investors: entities with annualized Total Revenue under the No-Tax-Due threshold — $1.23M for reports due in 2024–2025, adjusted for inflation biennially — owe zero Margin Tax. Most single-property or small-portfolio STR LLCs sit comfortably below this threshold and never write a Margin Tax check.
Worked Example — $150,000 Federal Deduction on a Fredericksburg STR
Assume an STR investor buys a fully-furnished Fredericksburg guest ranch, closes 2026, and identifies $150,000 in bonus-eligible 5-year and 15-year assets through a photo-analyzed cost-segregation report. Held in a single-member Texas LLC (disregarded for federal, treated as a taxable entity for Margin Tax but under the No-Tax-Due threshold).
| Line | Federal | Texas (Individual / SMLLC) | Texas (Margin Tax entity >$1.23M) |
|---|---|---|---|
| Year 1 §168(k) deduction | $150,000 | No state return / no depreciation entry | No effect (Margin Tax on gross receipts) |
| Year 1 tax at federal 37% / Texas 0% / Margin 0.75% | $55,500 saved | $0 Texas tax owed | $0 impact from §168(k) on Margin Tax |
| Reporting requirement | Schedule E | None | Form 05-158 (Margin Tax); depreciation not a line |
The individual Texas STR investor takes the full $55,500 federal Year-1 savings on a $150,000 bonus deduction, pays zero Texas tax, and files no Texas depreciation schedule. On a stacking basis this materially beats a California or New York investor with the same federal deduction, both of whom face significant Year-1 state add-backs. Run any Texas address to see the combined federal-and-state math on your specific property.
Texas STR Markets Where Bonus Depreciation Compounds Fastest
The Year-1 write-off is largest where the personal-property share of purchase price is highest. In Texas that concentrates in resort, wine-country, and coastal markets where STR properties are purpose-built or heavily amenitized:
Fredericksburg and the Hill Country wine corridor — Wimberley, Blanco, Johnson City, Dripping Springs, and the LBJ Lake area. Purpose-built 4–6 bedroom guest ranches with in-ground pools, hot tubs, outdoor kitchens, and full FF&E commonly run 30–35% bonus-eligible. A $1.2M Fredericksburg ranch can produce a Year-1 write-off of $360k–$420k.
Galveston and Bolivar Peninsula — beachfront and canal-front vacation homes with elevated construction (pier-and-beam on stilts) and full pool/spa/deck build-outs. Bonus-eligible shares of 30–34% are common; older cottages that have been modernized can hit the same range if the renovation stripped and replaced finishes.
Port Aransas, Rockport, and the Coastal Bend — smaller lots, higher land-improvement share (decks, seawalls, boat lifts). Bonus-eligible 28–33% typical; investors who add the outdoor kitchen and hot tub during renovation pull the top of the range.
New Braunfels, Gruene, and the Guadalupe River corridor — river-tubing STR demand keeps occupancy high; properties are often turnkey furnished with outdoor entertainment build-outs. Bonus-eligible 30–33%.
Austin (STR-permitted properties) — Type 2 STR permits are grandfathered in older neighborhoods (Zilker, Bouldin, East Austin). Turnkey furnished duplexes and casitas hit 28–32% bonus-eligible. Land ratio in central Austin is higher than in the Hill Country, so pure land eats a bigger share of purchase price — worth modeling. Run the address before offering to catch this.
Kerrville, Hunt, Marble Falls, and Horseshoe Bay round out the Texas Hill Country STR corridor. All exhibit the same pattern: high FF&E, high outdoor build-out, high 5-year and 15-year buckets. This is exactly the property profile where the difference between an assumed 25% and an itemized 33% bonus-eligible share is $60K–$120K in Year-1 write-off on a $1.5M purchase.
The Statute Explained
Texas's tax framework combines two constitutional-level protections for individual investors with an entity-level Margin Tax that sidesteps depreciation entirely. Tex. Const. Art. VIII, §1(a) authorizes only occupation and business taxes on natural persons and a 2019 amendment prohibits enacting a personal income tax without a two-thirds legislative vote and voter approval. Tex. Tax Code Ch. 171 imposes the Franchise (Margin) Tax on formal entities but calculates the tax on gross receipts minus a fixed deduction — never on federal taxable income and never touching depreciation.
OBBBA (P.L. 119-21) restored 100% federal bonus for property acquired and placed in service after January 19, 2025. For Texas STR investors the restoration flows through federal at full strength with zero state offset in any dimension.
How Texas Compares to Other No-Income-Tax States
Texas sits alongside Florida, Nevada, Tennessee, Washington, South Dakota, Wyoming, New Hampshire, and Alaska in the no-personal-income-tax club. For individual STR investors the outcome is identical across all nine: federal §168(k) preserved in full, no state modification, no add-back.
The subtle differences appear at the entity level. Texas (Margin Tax on gross receipts, No-Tax-Due under $1.23M revenue), Nevada (Commerce Tax on gross receipts, threshold $4M), Washington (B&O Tax on gross receipts, no threshold), and New Hampshire (Business Enterprise Tax, Business Profits Tax — some interaction with depreciation for larger entities) all avoid depreciation-based state adjustments. Florida (5.5% corporate income tax) and Tennessee (6.5% Franchise & Excise Tax) do impose income-based entity taxes with §168(k) add-back rules — those apply to a minority of STR investors who elect C-corp or specific pass-through treatments.
Use the state conformity tool to run Texas side-by-side with any other state at any federal deduction amount and marginal rate.
What This Means for Your Texas STR Purchase Decision
For an STR investor evaluating a Fredericksburg ranch, a Galveston beach house, or a Port Aransas condo, Texas's zero-income-tax posture is a pure win on the tax side. Three takeaways:
First, the federal Year-1 bonus deduction is fully preserved. On a $150,000 federal bonus deduction, a Texas individual keeps the full $55,500 federal Year-1 savings at 37% and pays nothing to the state of Texas.
Second, the Margin Tax is effectively invisible at the STR portfolio scale most investors operate at. Under the $1.23M No-Tax-Due threshold, formal LLC filings require the Public Information Report only. Even above the threshold, depreciation isn't a factor in the calculation.
Third, Texas STR investors compound the Year-1 §168(k) benefit against zero state tax on ongoing rental profits every subsequent year. Compared to an investor holding the same property in a decoupled income-tax state (Illinois, Virginia), the Texas position pays off in every year of the hold, not just Year 1.
Before writing an offer on any Texas STR placed in service after January 19, 2025, run the address to get a line-item breakdown of the actual bonus-eligible share.
Analyze a specific Texas property
Run any Texas STR listing through DepreciMax's $99 property report — line-item finish classification closely calibrated to a formal cost seg study, includes state-specific conformity math.
Frequently Asked Questions
Does Texas conform to federal §168(k) bonus depreciation?
For individual STR investors the question is moot — Texas has no personal income tax under Article VIII, §1(a) of the Texas Constitution. For entities subject to the Texas Franchise Tax (the Margin Tax) under Chapter 171 of the Texas Tax Code, the tax is levied on gross receipts (or a compressed cost-of-goods-sold / compensation formulation), not on federal taxable income. Depreciation is not a component of the calculation, so §168(k) has no state impact regardless of entity type.
Does the Texas Franchise (Margin) Tax reduce my STR bonus depreciation benefit?
No. The Margin Tax is a gross-receipts-style tax calculated on Total Revenue minus one of three deductions (COGS, compensation, or 30% of revenue). Depreciation is not deducted in any of the three formulas, so a bigger §168(k) deduction has no effect on the Margin Tax owed. Additionally, entities with annualized total revenue under $1.23M (2024–2025 threshold) owe no Margin Tax at all — the Public Information Report / No Tax Due Report threshold covers nearly every individual STR portfolio.
What entity structure should a Texas STR investor use?
The most common structures — sole proprietor (Schedule E), single-member LLC (disregarded), multi-member LLC (partnership), and S-corp — all bypass Texas Franchise Tax if annualized total revenue stays below the No-Tax-Due threshold. Above that threshold the same entities file a Margin Tax return, but again, depreciation is not part of the calculation.
How does Texas compare to Florida, Tennessee, and other no-income-tax states?
All nine no-income-tax states (Texas, Florida, Tennessee, Nevada, Washington, South Dakota, Wyoming, New Hampshire, Alaska) preserve the full federal §168(k) deduction for individual STR investors. The differences appear only at the business-entity level: Texas has the Margin Tax (gross-receipts based, no depreciation), Florida has a 5.5% corporate income tax with a §168(k) add-back, Tennessee has a 6.5% F&E Tax with a §168(k) add-back, and Nevada / South Dakota / Wyoming have no corporate income tax at all.
Which Texas STR markets benefit most from the 100% bonus restored under OBBBA?
Bonus depreciation stacks fastest in high-amenity resort and vacation markets where personal-property share of purchase price is elevated. In Texas that concentrates in Fredericksburg and the Hill Country wine corridor (Wimberley, Blanco, Johnson City), Port Aransas and the Coastal Bend (Rockport, Fulton), Galveston, the Hunt / Kerrville riverfront, New Braunfels / Gruene, and the Austin STR-permitted zones. A furnished Hill Country ranch commonly runs 30–35% bonus-eligible; a fully-appointed Galveston beach house can exceed 33%.
What's the Year-1 write-off on a $750,000 Texas STR under OBBBA?
Expect a Year-1 write-off of approximately $225,000 to $260,000 on a fully-furnished coastal or Hill Country STR at $750,000 purchase price, assuming a 30–35% bonus-eligible share. At a 37% federal marginal rate that is roughly $83,000 to $96,000 in Year-1 cash tax savings for a Real Estate Professional or Materially Participating STR investor — with no Texas state offset.
Do I need to file anything with Texas for my STR bonus depreciation?
For individuals holding STR property directly or through a single-member LLC, no — there is no Texas return that reflects depreciation. Entities under the No-Tax-Due threshold file the Public Information Report (Form 05-102) but owe zero Margin Tax and disclose no depreciation figures. Above the threshold, the Margin Tax return (Form 05-158) calculates tax on Total Revenue and one of three deductions; depreciation still is not a line item.
Every state's §168(k) position, in one place
Interactive map, sortable table, and deep-dive guide for each of the 51 jurisdictions — post-OBBBA verified.
See the 50-state map →Texas authority: Tex. Const. Art. VIII, §1(a) (permitting only occupation and business taxes on natural persons); Tex. Const. Art. VIII, §24 (2019 amendment requiring two-thirds legislative supermajority and voter approval for any future personal income tax); Tex. Tax Code Ch. 171 (Franchise / Margin Tax); Comptroller Rule 34 TAC §3.588 (Margin Tax computation); Texas Comptroller Franchise Tax guidance (comptroller.texas.gov). Federal authority: IRC §168(k), as amended by the One Big Beautiful Bill Act (P.L. 119-21) restoring 100% bonus depreciation for property acquired and placed in service after January 19, 2025. Nothing in this article is tax advice. Consult a CPA who specializes in real estate before making investment decisions based on state-conformity projections.