Property taxes are a burden for seniors in Texas. Fortunately, Texas seniors have many options to limit the impact of property taxes, including a freeze on school taxes, generous exemptions and the ability to defer paying property taxes for their residence. Homestead exemptions are available for all Texas homeowners to reduce their property taxes, with a superior exemption available to those over 65 years of age. The over-65 homestead exemption permanently freezes the amount paid for school property taxes.
School property taxes will never increase after obtaining an over-65 exemption, unless the property is renovated or the owner moves to a more valuable home. Renovations include upgrading a kitchen or bathroom, but replacing expensive items, such as a roof or an HVAC unit, are not renovations and will not increase property taxes. The over-65 homestead exemption is portable within Texas.
The new home will be taxed at the same market value as the previous home. For example, if the assessed value for school taxes was $150,000 and the market value was $200,000, the school property taxes were frozen at 75 percent of market value. This same percentage will be applied to the new home for school property taxes, but only if requested.
The process is to get a “tax ceiling certificate” from the county appraisal district where the prior home was located. There is no fee for the tax ceiling certificate or for any type of homestead exemption. City and county exemptions for those over 65 increase substantially in Houston and Harris County.
The homestead exemption is typically 20 percent of market value for the city of Houston and Harris County. The over-65 exemptions for Houston and Harris County are $160,000 plus 20 percent of the market value. About half of the Houston area homeowners over-65 do not pay city or county taxes. The median home price in the Houston metro area was $210,000 in January 2017, according to the Houston Association of Realtors. However, the over-65 exemption is $202,000.
Property taxes can become a serious problem for seniors who purchased a home in an area that appreciated rapidly. Property taxes are based on the current value, and not the value when property is purchased. A tear-down house in Tanglewood, West University or Meyerland could be valued at $1 million, and may have been a modest home when purchased 30 to 50 years ago. However, for property taxes, only the current market value and exemptions are relevant.
City of Houston property taxes for a $1 million home with an over-65 exemption would be $3,753. Of course, there would also be property taxes for the county and school. Seniors in Texas could be taxed out of their home if required to pay property taxes. Fortunately, Texas seniors also have the option of deferring payment of property taxes on their primary residence. Interest accrues at 8 percent, but there are no penalties. Property taxes continue to be assessed but are not due until the homeowner moves or dies.
However, a surviving spouse who is at least 55 years old can retain both the over-65 exemption and the tax deferral. The tax deferral ends 181 days after the death of the surviving spouse. The tax deferral is subject to the lender’s approval if there is a mortgage on the house. The over-65 exemption sharply reduces taxes for many tax entities, including the city of Houston and Harris County.
However, even though the dollar amount of the over-65 exemption varies by tax entity, homeowners can vote with their feet by choosing to save on property taxes in a location with favorable over-65 exemptions.