While Texas does not have a statewide property tax, local governments in the state rely heavily on property taxes to fund services such as schools, fire departments, and libraries. But for homeowners like you, tax bills can significantly strain your finances.
One way that Texas attempts to control property taxes is by capping increases on a home’s appraisal value. Even in a red-hot real estate market, by law, the appraisal value of your primary residence cannot increase by more than 10% in a single year. However, to truly understand how capped appraisal values work, you must first learn how property taxes are calculated under Texas law.
Every Texas county has an appraisal district responsible for determining the assessed value for every tax-paying parcel within its borders. When calculating your property taxes, your home’s assessed value is multiplied by the tax rate for individual tax districts, such as school districts and city governments. Therefore, a lower assessed value on your home amounts to a lower property tax bill.
Your local appraisal district is, by law, required to assess your home at its market value as of January 1 of each year. Officially, market value means the price you would receive for your home after listing it for a reasonable time on the open market.
But because appraisal districts need to determine a value for every property in the county, they often use mass-appraisal techniques based on public records to estimate property values.
The problem is that these techniques often fail to properly account for your home’s distinct characteristics or are based on incorrect data. And since an improperly-inflated assessed value results in your tax bills being too high, many Texas homeowners end up paying more than their fair share of property taxes.
Individual Texas taxing districts can offer homeowners exemptions on their homestead (principal residence). For example, every school district must provide a $25,000 per year exemption on primary residences or “homesteads.” There are other homestead exemptions allowed for homeowners with disabilities or over the age of 65.
You can only qualify for a homestead exemption on your principal residence. If you use another location as your primary residence, whether in Texas or another state, you cannot receive any homestead exemptions on your property taxes. You also must own the home as an individual, not through a business entity. Finally, you must apply for any exemptions because they are not automatically granted.
The good news is that if you qualify for a homestead exemption, the Texas Tax Code caps the amount the appraisal district can increase your assessed value each year. This cap is 10% above last year’s assessed value, regardless of market conditions.
In fast-growing areas, actual home values can increase by more than 10% in a year. Additionally, new development plans may make your property especially valuable. But so long as you qualify for a homestead exemption, you are protected by capped appraisal value. Your assessed value will not increase by more than 10% over the last year.
However, there is one crucial exception. Be aware that if you make new improvements to your home that affects its market value, the boost from the improvements can be added to your assessed value. Improvements do not mean ordinary maintenance or upkeep on an existing house.
So, replacing an old roof is not considered an improvement for capped appraisal value. But building an addition on the back of your home that adds square footage, a new bedroom, and a new bathroom may bump your home’s market value by more than 10%. And the appraisal district is allowed to consider these improvements when determining your assessed value.
If the assessed value of your home went up dramatically from last year, filing a property tax protest will allow you to challenge the assessment. The appraisal district may have failed to evaluate current market conditions or made a mistake based on incorrect data. As a homeowner, you are entitled to a hearing before an Appraisal Review Board (ARB) to protest your property’s assessed value.
While this might sound intimidating, you do not have to navigate the tax protest process alone. The professionals at Watchtower Protest have years of experience winning lower taxes for Texas homeowners. Sign up for our risk-free services today!
Discover how Computer Assisted Mass Appraisal techniques could wrongly calculate your home's Texas property taxes