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No, not by the state. Texas has no state income tax, so it does not tax your rental income at all. That income is still fully taxable at the federal level, reported on Schedule E of your Form 1040, the same as a rental in any other state. The real Texas cost is not on your income. It shows up in some of the highest property taxes in the country, and in a hotel occupancy tax if you rent short-term.
Texas Has No State Income Tax on Rental Income
Texas is one of a handful of states with no personal income tax, and rental income is no exception. Voters made this permanent in 2019, amending the Texas Constitution to bar the legislature from ever taxing individual income. Collect monthly rent, cash a lease-cancellation payment, or sell the property for a gain: none of it triggers a state income tax bill.
The rule covers residential and commercial rental property alike. Where it gets more complicated is if you live in a different state than the one where your property sits. Your state of residence may still tax that rental income even though Texas will not, so check the rules where you actually live before assuming you owe nothing at all.
Your Rental Income Is Fully Taxable at the Federal Level
The IRS taxes all rental income, and you report it on Schedule E (Form 1040) in the year you receive it or become entitled to it (IRS Topic 414). That is the trade Texas landlords make: no state cut, but the federal government treats a Texas rental exactly like one in California or New York.
Rental income covers more than the check you get on the first of the month. Per IRS Publication 527, it also includes:
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Monthly rent payments, taxable in the year you receive them
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Advance rent, taxable in the year received regardless of which period it covers
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Lease-cancellation payments, treated the same as rent
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A security deposit you keep because a resident broke the lease, taxable the year you keep it
One exception matters. A security deposit you intend to return at move-out is not income when you receive it. It only becomes taxable if you end up keeping some or all of it.
For the fuller federal picture, our complete guide to rental income taxes walks through filing start to finish.
Texas Trades Income Tax for Some of the Highest Property Taxes in the Country
Texas has no state property tax either. What it has instead is some of the steepest local property taxes in the nation, and that is the real tax cost of owning rental property here. Texas’s effective property tax rate runs around 1.4 percent of home value by Tax Foundation measures, and other national rankings put Texas among the six or seven highest-taxed states on this measure alone.
Counties and school districts set these rates locally, so your actual bill depends entirely on where the property sits. The upside: property tax is a deductible rental expense, so a share of that local bill comes back to you at tax time. We cover the mechanics in the deductions section below.
Short-Term Rentals Owe Texas Hotel Occupancy Tax, Not Income Tax
If you rent a property for stays under 30 days, Texas charges a 6 percent state hotel occupancy tax, on top of whatever local hotel tax your city or county adds. It applies to rooms or units renting for $15 or more a day, and it covers short-term houses and condos on the same terms as hotels (Texas Comptroller).
Stay 30 or more consecutive days without a break in payment, and the guest becomes a “permanent resident,” exempt from the tax. Give written notice of the extended stay before the 30 days start, and the exemption applies from day one. Skip the notice, and the tax applies for the first 30 days, then stops.
You, the host, are the one who collects and remits this tax. Listing through a platform that has its own collection agreement with the Comptroller can shift the paperwork, but the liability stays with you until you confirm it is actually covered.
Deductions That Cut Your Federal Rental Tax Bill
The upside of full federal taxability is a full menu of deductions. Texas landlords can typically write off:
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Mortgage interest
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Property tax
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Depreciation
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Repairs and maintenance
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Operating expenses, including utilities you pay and property management fees
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Insurance premiums
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Professional and legal fees, such as accounting and legal advice
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Travel to and from the property
Every item on that list has to be ordinary, necessary, and documented to survive a closer look, which is why record-keeping matters as much as the deduction itself. For a category-by-category breakdown with real numbers, see our rental property expenses guide.
Depreciation Runs 27.5 Years for Residential, 39 for Commercial
Depreciation lets you deduct the cost of the building over a fixed number of years. Land itself never qualifies. The IRS sets that period at 27.5 years for residential rental property and 39 years for commercial, using straight-line depreciation, per IRS Publication 527 and Publication 946.
This is what makes rental property look better on paper than it feels in your bank account. A property generating real cash flow can still report a loss once depreciation is subtracted, which is often the single biggest reason a profitable rental shows little federal taxable income.
Common Tax Mistakes Texas Landlords Make
The costliest mistake is not reporting all rental income, including advance rent, retained deposits, and lease-cancellation payments. The IRS treats all of it as taxable, and skipping any of it is the fastest way to draw scrutiny.
Past that, the recurring errors are:
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Misclassifying repairs as improvements, or the reverse. A repair is deductible now. An improvement gets depreciated over years, and getting this backward either understates or overstates your deduction.
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Mixing personal and rental finances. Run rental income and expenses through a dedicated account. It is the difference between a clean tax return and a reconstruction project every April.
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Misapplying passive activity loss rules. Most landlords can only deduct rental losses against rental income. Active participants get a special allowance of up to $25,000 against other income, and that allowance phases out between $100,000 and $150,000 of modified adjusted gross income (IRS Publication 925).
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Assuming “no income tax” means no state filings at all. Rentals held in an LLC or other entity can trigger the Texas franchise tax once annualized revenue clears the state’s no-tax-due threshold, and short-term rentals owe the hotel occupancy tax regardless of entity structure.
Good record-keeping heads off most of this list before it starts. Separate accounts, saved receipts, and a simple running log of income and expenses solve half these mistakes on their own. Our guide to how to manage a rental property covers the systems worth setting up.
Renting out property in Texas involves more than the tax return. For the rules that govern the relationship itself, see landlord responsibilities in Texas and what a landlord cannot do in Texas, and if you are weighing a rent increase, the limits are covered separately in what is the maximum rent increase allowed in Texas.
FAQ
Do Texas landlords have to pay federal tax on rental income?
Yes. All rental income is taxable at the federal level regardless of what state the property sits in, and Texas landlords report it on Schedule E of Form 1040.
What is the state income tax rate on rental income in Texas?
There is none. Texas has no state personal income tax, so rental income is not taxed at the state level at all. The obligations that do apply in Texas are local property tax and, for short stays, the state and local hotel occupancy tax.
Is there a difference in how residential and commercial rental income is taxed in Texas?
Not at the state level. Texas taxes neither one. At the federal level, both get reported the same way on Schedule E, but they depreciate on different schedules: 27.5 years for residential, 39 years for commercial.
How does depreciation work for a Texas rental property?
You deduct the cost of the building (land is excluded) over 27.5 years for residential property or 39 years for commercial, using straight-line depreciation. It is a paper deduction that lowers your taxable income without costing you cash, often enough to turn a cash-flow-positive rental into one that reports little federal taxable income.
This article is general information, not tax advice. Laws change, and every situation is different. For guidance on your specific situation, talk to a licensed tax professional.
