Short-Term Rental Taxes in Texas: What STR Investors Pay (and Don't Pay)
No state income tax | 6% state hotel occupancy tax | City hotel taxes 7–9% | Strong STR markets in Austin, Hill Country, San Antonio | Full federal bonus depreciation benefit
Texas is one of the fastest-growing states in the country and home to several of the most dynamic STR markets: Austin (music festivals, tech industry, SXSW), the Texas Hill Country (wine country, weekend escapes from Houston and Dallas), San Antonio (Alamo, River Walk, tourism), and Fredericksburg (wine region). Combined with no state income tax, Texas offers one of the best income tax environments for STR investing.
No Texas State Income Tax
Texas has no personal income tax — rental income, wages, and investment returns are all income-tax-free at the state level. The full benefit of cost segregation, bonus depreciation, and the STR loophole flows to the federal return without any state-level offset.
Texas does have a franchise tax (the Texas Margin Tax) for certain entities, but this applies to business entities with revenues above $1.18 million (2025 threshold) and is calculated differently from income tax. Most individual STR investors operating through a single-member LLC will not be subject to the franchise tax.
Texas Hotel Occupancy Tax
| Market / Jurisdiction | State HOT (6%) | City/County HOT | Total Rate |
|---|---|---|---|
| Austin (city limits) | 6% | 9% | 15% |
| San Antonio (city limits) | 6% | 9% | 15% |
| Houston (city limits) | 6% | 7% | 13% |
| Dallas (city limits) | 6% | 7% | 13% |
| Fredericksburg (Gillespie County) | 6% | 7% | 13% |
| New Braunfels (Comal County) | 6% | 7% | 13% |
| Galveston (Galveston County) | 6% | 7% | 13% |
| South Padre Island | 6% | 7% | 13% |
Top Texas STR Markets
Austin: High nightly rates driven by SXSW, ACL Music Festival, Formula 1 (Circuit of the Americas), and the University of Texas. Austin's STR regulations require registration. Demand consistently keeps average stays well below 7 days, supporting the STR loophole.
Texas Hill Country (Fredericksburg, Wimberley, New Braunfels): Vineyard retreats, swimming holes, and weekend escapes from San Antonio, Austin, and Houston. Properties tend to be freestanding homes with pools, outdoor entertainment areas, and scenic views — high personal property ratios for cost segregation.
San Antonio: Tourism-driven by the Alamo, River Walk, and major conventions. Shorter stays typical; strong year-round occupancy. Downtown condos and historic Southtown properties are popular.
Texas Property Taxes: The Trade-off
Texas compensates for its lack of income tax with notably high property tax rates — typically 1.5–2.5% of market value annually. For a $500,000 STR, that's $7,500–$12,500/year in property taxes. These are fully deductible as a business expense on your Schedule E, but they represent a significant ongoing cost that investors in lower-property-tax states (Florida, Tennessee) don't face.
Estimate Your Texas STR Tax Savings
No income tax + 100% federal bonus depreciation = exceptional Texas STR returns. Get your free cost segregation estimate.
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