Houston Rockets general manager Rafael Stone says he and owner Tilman Fertitta are aligned on making strategic moves and not limited by possible luxury tax.
Brett Coomer/Houston Chronicle
In a move that went unnoticed by most, the Houston Rockets waived JD Davison in early August. It was a minor transaction on the surface. Davison was on the fringe of Houston’s roster and had a non-guaranteed salary for the 2026-27 season.
But the move brought the Rockets just under the luxury tax threshold.
That’s a common spot for Houston. The franchise has paid the luxury tax in only three seasons since 2002, according to Spotrac. The Rockets have paid the tax just once since Tilman Fertitta bought the team in 2017 — last season. Unlike the first or second levels of the payroll threshold called aprons, being in the luxury tax does not come with team-building penalties, only financial ones.
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“We’ll see,” Houston general manager Rafael Stone said after last season when asked whether Houston would be in the tax in 2026-27. “The roster, the way it’s set up, we very likely will be but all of that’s like — what contracts become available, what trades happen, all of this. I don’t see us, I don’t see Tilman ever wanting to take a step back that isn’t strategic.”
The Rockets haven’t paid the tax in recent years partly because, as a rebuilding team, they didn’t have as many players to pay. Now that many of the young players acquired during the rebuild have earned extensions, the bill is rising.
Houston is $14,077 under the luxury tax threshold, according to Spotrac. If the Rockets wanted to, they could sign a player to a minimum contract on the last day of the regular season to fill their open roster spot and still stay under the tax.
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Teams pay different tax rates on each dollar above the threshold — a little more than $200 million — based on how far above the line they are. They pay $1 for each dollar above the threshold up to a little more than $6 million, $1.25 for each dollar between about $6 million and $12 million, $3.50 for each dollar between about $12 million and $18 million, and so on.
There are even steeper penalties for teams in the “repeater tax” — teams that are in the luxury tax for at least four consecutive seasons or four out of five seasons.
For example, the Golden State Warriors are in the luxury tax for a seventh consecutive season. As a team in the repeater tax, they would pay about $86 million in tax if they maintain their salary balance through the end of the season. If they weren’t in the repeater tax, that figure would drop to about $47 million.
Houston Rockets guard Fred VanVleet (5) pulls up for a shot against the Atlanta Hawks in the first half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Houston Rockets head coach Ime Udoka, right, and Houston Rockets forward Kevin Durant (7) leave the court after the team’s 120-110 win over Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Houston Rockets forward Kevin Durant (7) and Houston Rockets head coach Ime Udoka leave the court after the teams 120-110 win over the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Houston Rockets forward Jabari Smith Jr. (10) drives to the basket around Atlanta Hawks guard CJ McCollum (3) during game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets guard Fred Vanvleet (5) hugs Houston Rockets guard Reed Sheppard (15) after Sheppard connected for a three in the second half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets forward Tari Eason (17) puts up a shot against Atlanta Hawks guard Dyson Daniels (5) during game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets head coach Ime Udoka celebrates guard Reed Sheppard (15) three pointer in the second half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets guard Reed Sheppard (15) reacts to hitting a three pointer in the second half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets guard Fred Vanvleet (5) reacts to getting hit in the face by Atlanta Hawks forward Jalen Johnson (1) in the second half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets guard Fred Vanvleet (5) reacts to getting fouled and making the shot for a three-point-play in the second half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets center Steven Adams (12) watches his team take on the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets forward Tari Eason (17) reacts to hitting a three pointer against the Atlanta Hawks in the second half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets center Alperen Sengun (28) reacts to scoring in the second half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets forward Kevin Durant (7) and center Alperen Sengun (28) celebrate during a timeout the second half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Atlanta Hawks center Jock Landale (31) is stripped of the ball from Houston Rockets forward Jabari Smith Jr. (10) in the second half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets forward Kevin Durant (7) celebrates hitting a three pointer in the second half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets guard Amen Thompson (1) loses ground while Atlanta Hawks guard Nickeil Alexander-Walker (7) looks to drive to the basket in the second half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
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Houston Rockets forward Kevin Durant (7) body bumps Houston Rockets center Alperen Sengun (28) after he was fouled for a plus-one situation in the second half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
Elizabeth Conley/Houston Chronicle
Houston Rockets head coach Ime Udoka watches his team take on the Atlanta Hawks in the second half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
Elizabeth Conley/Houston Chronicle
Houston Rockets forward Kevin Durant (7) has some words Atlanta Hawks forward Jalen Johnson (1) after he was fouled in the second half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
Elizabeth Conley/Houston Chronicle
Houston Rockets forward Kevin Durant (7) smiles after being fouled in the second half of game action against Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
Elizabeth Conley/Houston Chronicle
Atlanta Hawks guard CJ McCollum (3) drives to the basket past Houston Rockets center Alperen Sengun (28) in the second half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
Elizabeth Conley/Houston Chronicle
Atlanta Hawks guard CJ McCollum (3) pulls up for a shot around Houston Rockets guard Fred Vanvleet (5) in the second half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
Elizabeth Conley/Houston Chronicle
Houston Rockets center Alperen Sengun (28) is fouled as he drives to the basket during game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026. Houston Rockets won the game 120-110.
Elizabeth Conley/Houston Chronicle
Houston Rockets guard Bogdan Bogdanovic (31) pulls up for a three pointer in the first half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Houston Rockets forward Kevin Durant (7) looks for an open teammate as Atlanta Hawks defense applies pressure in the first half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Houston Rockets head coach Ime Udoka talks with Houston Rockets forward Tari Eason (17) in the first half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Houston Rockets guard Fred Vanvleet (5) drives up the ball against Atlanta Hawks guard CJ McCollum (3) in the first half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026.
Elizabeth Conley/Houston Chronicle
Houston Rockets forward Jabari Smith Jr. (10) pulls up for a three pointer in the first half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026.
Elizabeth Conley/Houston Chronicle
Houston Rockets forward Kevin Durant (7) pulls up for a three-point shot over Atlanta Hawks guard Dyson Daniels (5) in the first half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026.
Elizabeth Conley/Houston Chronicle
Houston Rockets center Alperen Sengun (28) acknowledges his foul against the Atlanta Hawks in the first half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026.
Elizabeth Conley/Houston Chronicle
Houston Rockets forward Tari Eason (17) charges Atlanta Hawks guard Luguentz Dort (0) in the first half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Atlanta Hawks guard Kingston Flemings (4) puts up a shot against Houston Rockets during game action at the Toyota Center in Houston on Monday, Oct. 26, 2026. The UH grad is a rookie this season with Atlanta.
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Houston Rockets guard Fred Vanvleet (5) chats with Houston Rockets center Alperen Sengun (28) after a foul call in the first half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026.
Elizabeth Conley/Houston Chronicle
Houston Rockets forward Kevin Durant (7) pulls up for a shot over Atlanta Hawks forward Onyeka Okongwu (17) in the first half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Houston Rockets forward Kevin Durant (7) pulls up for a shot against the Atlanta Hawks in the first half of game action at the Toyota Center in Houston on Monday, Oct. 26, 2026.
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Houston Rockets guard Amen Thompson (1) looks to dish the ball off to a teammat during in the first half of game action against the Atlanta Hawks at the Toyota Center in Houston on Monday, Oct. 26, 2026.
Elizabeth Conley/Houston Chronicle
Even though the Rockets have a few years before they’re in danger of being in the repeater tax, the steep financial penalties are a potential reason Houston is trying to get under the threshold this season. The Rockets might be in the tax for the next few seasons after Amen Thompson’s extension kicks in. He will go from making about $12 million this season, the last of his rookie deal, to $36 million, $39 million and $42 million in the first three seasons of his extension. Houston might also need to work out new contracts for Reed Sheppard, who is eligible for an extension after the season; Kevin Durant, who has a player option for 2027-28; and Fred VanVleet, who is on an expiring deal.
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If the Rockets stay out of the tax this season, they can pay it in two of the next three seasons without going into the repeater tax. Also worth noting: The current collective bargaining agreement expires after the 2029-30 season.
Houston had no trouble building a strong roster this offseason while staying under the tax. The Rockets signed Marcus Smart to a two-year, $12.4 million deal and signed Bogdan Bogdanovic and a few others to minimum contracts. They also shed some salary by using three second-round picks to dump Dorian Finney-Smith’s approximately $13 million salary.
Houston did leave some resources on the table in an effort to stay under the tax, mainly the rest of the midlevel exception. The Rockets used a chunk of it to sign Smart but still have a little less than $9 million left. If they use it, they’ll be hard-capped at the first apron. They’re about $8.6 million below the apron now, meaning they’d need to shed salary to use the full midlevel.
The Rockets could have used that money, maybe for a more impactful player than Bogdanovic. But he’s been solid early in the season, and the players who ended up signing for around $8 million don’t seem to be meaningful upgrades. Adding Bogdanovic and another player probably doesn’t make sense because Houston doesn’t have room in its rotation. Coach Ime Udoka is already running a 10-man rotation, and anything beyond that gets unwieldy.
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The asset Stone and the Rockets have yet to use is the trade exception generated by the Finney-Smith deal.
By sending out the forward’s salary and not taking any in return, Houston generated an approximately $13 million exception it can use to absorb a player making around that much without having to shed salary.
Will they do that? We’ll see. The Rockets started the season 4-0, and the Western Conference looks more open now after key players on the Oklahoma City Thunder suffered unfortunate injuries. Houston is in position to use that trade exception along with its cache of picks to plug potential holes if a player in its rotation gets injured or underperforms.
In that situation, the Rockets could find themselves in the tax — which again would affect only the Fertittas’ finances. Stone’s comments at the end of last season seem to indicate he wouldn’t expect that to be an impediment.
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“If we weren’t (in the tax), it’s because of some opportunity to do something else that is basketball related,” he said at the end-of-season news conference. “… In a lot of respects I have the best owner in sports. His goals are really aligned with mine and it’s all about winning and he’s provided amazing amounts of support and I expect he will continue to.”