Texas taxes for early retirees: no income tax, plenty of property tax

By Tom, CPA · Updated October 25, 2026

TL;DR: Texas has no personal income tax, so withdrawals, conversions and gains face only federal tax. Property taxes do the heavy lifting, softened for homeowners by a $140,000 school district homestead exemption, an extra $60,000 at 65 or with a disability, optional local exemptions and a school tax ceiling for seniors.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Texas has no state income tax and isn't shy about telling you. For early retirees doing Roth conversions, selling appreciated funds or drawing from IRAs, that's a real advantage: the only tax on those moves is federal.

The catch is famous. Texas funds schools and local government heavily through property taxes, and the rates can make newcomers check the decimal point twice. The exemptions are generous for homeowners, especially at 65. This guide covers how it all works and how early retirees can plan around it.

CPA Warning Label: No income tax inside. Property tax bill sold separately, and it's large enough to have its own zip code.

No income tax

As of October 2026, Texas has no personal income tax. Texas residents pay no state tax on wages, pensions, Social Security, IRA and 401(k) withdrawals, Roth conversions, interest, dividends or capital gains.

For FIRE households, that turns several classic strategies into federal-only problems:

• Roth conversion ladders cost only federal tax. See the conversion ladder timeline.
• Selling a concentrated stock position or rebalancing creates no state bill.
• Part-time work after retirement isn't taxed by the state either.

Texas also has no state estate or inheritance tax.

Property tax and exemptions

Property taxes in Texas are set by local taxing units: school districts, counties, cities and special districts. The Texas Comptroller's exemption guidance lists the main homestead benefits:

So a homeowner 65 or older can exempt $200,000 of value from school district taxes before local options. You apply with the county appraisal district, generally using Form 50-114, the residence homestead exemption application.

The exemption only applies to your principal residence. Rentals and second homes are taxed on full value. If you buy mid-year, ask the appraisal district when the exemption starts; in many cases you can apply in the year you buy, but rules on timing and proration are worth confirming locally before closing.

Sales tax

The Texas state sales tax rate is 6.25%, and local jurisdictions can add more. Many essentials, including most grocery food and prescription drugs, are exempt. As with any sales-tax-heavy state, a frugal retiree pays little and a lavish one pays a lot. Lavish Larry's custom truck with a built-in smoker generates quite a receipt.

Over-65 freeze

Texas homeowners who are 65 or older (or disabled) and claim the homestead exemption get a tax ceiling on school district taxes for that home. In plain English, the school tax amount generally can't rise above what it was in the year you qualified, unless you make major improvements. Counties, cities and junior college districts may also adopt a ceiling.

For early retirees, this is a reason to think about timing. If you plan to stay in one house long term, the ceiling becomes more valuable the longer you live there. Some retirees who plan to downsize try to do it before 65 so the ceiling locks in on the home they intend to keep. Ceiling portability rules exist if you move within Texas, but read them before counting on them.

Residency

Moving to Texas is simple: get a Texas driver's license within the required window, register vehicles, register to vote and update your address. The harder part is leaving your old state. States like California and New York may argue you're still a resident if you keep a home there or spend much of the year there. Make the move complete, then do the big conversions and sales. See changing state tax residency.

Example

Illustration. Hypothetical numbers only. A 58-year-old couple buys a $450,000 home in a district with a combined property tax rate of 2% of taxable value (rates vary widely by location).

• School taxes apply after the $140,000 exemption. The other taxing units may offer less or no exemption.
• Suppose their total bill works out to roughly $6,500 a year after exemptions.
• They do $50,000 Roth conversions each year. In a state with a 5% effective rate, that would cost about $2,500 a year in state income tax. In Texas, $0.
• At 65, their school exemption rises by $60,000 and the school tax ceiling kicks in, so that part of the bill stops growing.

Compared with a state that has income tax but cheaper property tax, the answer depends on the house. A smaller home or renting makes Texas look great. A big house with a small income can tip the other way.

Ways to manage the property tax bill

• Protest your appraisal. Texas has a formal protest process, and many homeowners use it every year. Bring comparable sales and photos of issues.
• Buy less house. Property tax is the one bill you can't Roth-convert your way out of.
• Check the district. Rates vary a lot between neighboring areas, including municipal utility districts in newer subdivisions.
• Watch exemptions after a move. Re-file when you buy a new homestead; exemptions don't follow you automatically.
• Budget for growth. Until the 65+ ceiling applies, the bill can rise as values and rates change.

Federal taxes still apply

Whatever Texas does, the federal system still sets the base. For 2026 the federal standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, and long-term capital gains can fall in a 0% bracket at lower incomes. Many early retirees aim to fill the low federal brackets each year with Roth conversions or gain harvesting. State tax then rides on top, so check how Texas treats each type of income before deciding how much to convert. Social Security can become partly taxable federally as other income rises, and Medicare premiums later depend on income from two years earlier. A year of very low income can be just as wasteful as a year of very high income, because unused low brackets disappear on December 31. See 2026 tax brackets for FIRE.

Health coverage before Medicare

Before Medicare at 65, most early retirees in Texas buy coverage through the ACA Marketplace (HealthCare.gov or the state exchange). Premium tax credits depend on household income, so the same withdrawal choices that drive Texas income tax also drive what you pay for insurance. Price plans for your actual county, since insurer choice and premiums vary a lot between metro and rural areas. If your taxable income will be very low, check Medicaid eligibility rules for Texas too. Our guides to the ACA subsidy cliff and managing MAGI go deeper.

One practical tip: estimate next year's income before open enrollment, then pick withdrawals to land where you planned. Surprises in either direction get reconciled on your federal return, and from 2026 there is no cap on repaying excess advance credits.

Your Texas planning checklist

Use this as a starting list when you are weighing a move or planning withdrawals. Work through it a year before you leave your job, and again each fall before you decide on Roth conversions.

• Apply for the homestead exemption (Form 50-114) as soon as you're eligible.
• At 65, file for the additional exemption and confirm the school tax ceiling is applied.
• Compare property tax rates by district before buying, including MUDs.
• Review your appraisal notice each spring and protest if the value is off.
• Schedule Roth conversions and big gains after residency is established.

Tax rules change every legislative session. Confirm current figures with the Texas revenue department before acting, and treat this page as education, not advice for your situation.