Introduction
Texas has over 600 federally designated Opportunity Zones (OZs) that offer significant capital gains tax deferrals and exclusions. But in 2025, savvy investors and startups are also looking at state-tax tie-ins—especially regarding the Texas Franchise Tax.
This guide explains how Opportunity Zone investments benefit from federal programs and what Texas-specific incentives or traps you should know.
IRC and Texas Code References
- IRC §1400Z-1 & §1400Z-2 – Federal OZ rules
- Texas Tax Code §171.101 – Margin tax calculation
- Texas Economic Development & Tourism (EDT) – Local opportunity zone resources
Quick Recap: Federal OZ Benefits
- Capital Gain Deferral: Until Dec 31, 2026
- Step-Up Basis: Up to 15% if held long enough (legacy investments)
- Gain Exclusion: On appreciation if held 10+ years
Applies to:
- Real estate development
- Operating businesses (SaaS, logistics, retail)
- Startups setting up in OZ tracts
State-Level Treatment in Texas
Texas does not conform to federal income tax laws because it doesn’t have a personal income tax. However:
- Franchise Tax still applies to businesses in Opportunity Zones
- OZ investments may reduce taxable margin if structured with:
- COGS-based method
- Compensation method with local payroll
- Some counties offer property tax abatements or local grants within OZs
Example: Startup in a Houston OZ
Example: BluGrid Energy, a solar storage company, opens a manufacturing facility in a Houston Opportunity Zone.
- Gains from a prior asset sale are invested into the QOF
- They buy land and build a facility inside the zone
- While TX gives no income tax break, they qualify for:
- Local property tax incentives
- Franchise tax reduction via COGS and payroll deduction
Step-by-Step: Leveraging OZs in Texas (2025)
- Identify OZ Tracts
Use the IRS or Texas EDT map to locate active zones. - Form a Qualified Opportunity Fund (QOF)
Can be an LLC, corp, or partnership investing in zone property. - Invest Capital Gains
Roll in eligible capital gains within 180 days. - Structure for TX Franchise Optimization
Use payroll-heavy or COGS-based deduction methods. - Apply for Local Incentives
Some cities/counties offer grants, abatements, and expedited permits.
Conclusion
Opportunity Zones in Texas are federally powerful, but still taxable under the franchise tax.
With smart structuring, however, founders and investors can defer federal capital gains and reduce state tax exposure using payroll and COGS deductions.
Always look at local county incentives as well.
Call to Action
Planning an investment or business launch in a Texas Opportunity Zone?
Book a consultation with Anshul Goyal, CPA, EA, FCA to:
- Structure your Qualified Opportunity Fund (QOF)
- Maximize both federal and Texas tax savings
- File your franchise tax report with optimal deductions
Opportunity Zones are more than hype—get your strategy right.
https://calendly.com/anshulcpa/
About Our CPA
Anshul Goyal, CPA, EA, FCA
Anshul brings 15+ years of U.S. and international tax experience. He specializes in helping online sellers, foreign founders, and U.S. residents with IRS and multi-state compliance. Known for his deep knowledge in Shopify and Amazon seller tax strategy, Anshul has helped hundreds of entrepreneurs minimize taxes and scale legally.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax professional regarding your individual tax situation.
Top 5 High-Searched FAQs (2025)
1. Does Texas offer its own Opportunity Zone tax breaks?
No state income tax relief, but franchise tax can be reduced via COGS/payroll.
2. Can I invest in a business inside a TX OZ?
Yes. Startups, real estate, and manufacturing are common use cases.
3. Do I need a QOF to invest in OZs?
Yes, you must use a Qualified Opportunity Fund.
4. What is the deadline for deferring capital gains?
You must invest within 180 days of the gain.
5. Are there county-level OZ benefits in Texas?
Yes—such as tax abatements and fast-track permitting.