As the American population grows older and more seniors move to Texas for lower taxes, more and more Texans are facing the prospect of inheriting homes after their relatives pass away. With homeownership getting older every year, many younger Texans are unfamiliar with the process that few want to face. While inheriting a home can be a bittersweet gift from a departed loved one, there are several logistical considerations.
While there are many issues to focus on, we will primarily look at property taxes. Despite its reputation for being a low-tax state, Texas does have some of the highest property taxes in the nation and can catch the unwary off guard. In this article, we will go over the basics of what to expect when taking over a home after a loved one passes away.
Does Texas Have Estate or Inheritance Taxes?
Texas, like many states, does not impose an estate or inheritance tax. This is one of the main reasons that many older people settle in Texas, as it gives them a chance to pass along their most prized investment without interference. While the federal estate tax might be a concern, it generally applies only to estates over $15 million, which makes having to deal with it unlikely. The lack of an estate tax in Texas makes the transfer of homes or other property much simpler.
Texas Probate
While deeds can have a provision to transfer automatically to an heir or trust upon death, most homes and other pieces of real estate will go through probate. During this time, the home will be part of the deceased’s estate, as creditors and other claimants may file claims against the estate for debts or taxes owed. When a probate notice is filed with the courts, the local appraisal district will list the home in the name of the estate. This can have property tax implications, as many exemptions will expire on the home while it is in this state.
Property Taxes During Probate
The responsibility for paying property taxes initially falls to the estate during probate, with the executor using estate funds to pay any outstanding property tax bills. Even when the home is between an heir and the deceased, taxes still accrue. Because exemptions such as the homestead and over-65 exemptions may no longer apply, the taxable value of the home can increase significantly. This is especially true of homestead properties, as the previous 10% appraisal cap will be removed, meaning reassessment will apply the full market value to a home, not just the appraised value. This can lead to a significant increase in the tax bill.
Property Taxes After Probate
Once probate has been concluded and the heir takes possession of the home, all responsibilities fall to the heir. This means property taxes, HOA fees, and general upkeep become the responsibility of the heir. If the heir takes over a mortgage, property taxes may be paid through monthly mortgage payments, with the annual tax bill divided into monthly installments. If the property is paid off, then the heir will have to be prepared to handle paying the entire amount every year. The first priority in either situation should be filing and establishing a homestead exemption.
Texas Homestead Exemption
This exemption is the baseline for all other property tax exemptions and has many benefits. However, to qualify for it, the heir must have the inherited home as their primary residence. If you already own a home and then receive ownership of another one, you cannot have a second homestead exemption. You must choose which residence will be your primary one, which means you can forfeit the one on your existing home. If this is your first time as a homeowner, then things are a little simpler. You will need to file a homestead application with your local appraisal district, with supporting documents, which may include a Texas driver’s license, a deed, and other information confirming ownership.
The homestead exemption provides many benefits. First, it shields $140,000 of a home’s value from school taxes, which are the largest tax bill in Texas. Next, the homestead exemption provides a 10% appraisal cap. This means that the appraised value of a home can never increase more than 10% per year. This is a great shield against property value spikes. The homestead exemption has seen many improvements over the past few years and could get even more in the coming years. Many local taxing bodies will also grant minor exemptions for homestead properties, which can mean even more savings.
Other Exemptions
While the homestead is a great start, there are some other exemptions that can be used if you qualify. First is the over-65 exemption , which provides an additional $60,000 exemption from school taxes. This can be used along with the homestead to provide a combined exemption of $200,000. The disabled person’s exemption functions exactly the same, but cannot be used with the over-65 exemption. These exemptions and others should be claimed within 30 days of taking over a home to ensure you are getting the most out of your tax savings.
Verify Appraisal Information
Appraisal districts operate with skeleton crews and can often make mistakes. This includes incorrect measurements, incorrect listings of improvements, inaccurate acreage, and other errors. These mistakes can go on for years or even decades if not corrected. One of the first things a new homeowner should do is review the appraisal information to make sure there are no blatant errors. Every April, the appraisal district will also send a notice of appraisal, which you should review. This will contain all of the basic information and should also be verified. The most important details to look for are the owner’s name and exemptions. You will want to make sure that your name is on the appraisal, rather than the deceased person’s name or the estate’s name. This could lead to much higher taxes. Not verifying the appraisal is perhaps the biggest mistake a new homeowner makes, other than not filing a homestead exemption.
Filing Property Tax Appeals
If you find that your new property has any of the factual errors mentioned above, then you should file a property tax protest to correct them. In addition, if your new property appears to be appraised at a value that is much higher than it should be or is appraised unequally compared with neighboring properties with similar characteristics, you should consider filing an appeal. An appeal can help correct any issues with the appraisal and might help reduce values that were raised after the loss of a homestead exemption cap or other issues. Because of high property taxes in Texas, many homeowners appeal every year to ensure that they are only paying what they owe.
O’Connor Helps with Exemptions and Appeals
Taking over the home of a loved one can be a difficult time, both emotionally and financially. We at O’Connor are here to help. For over 50 years, we have provided Texans with solutions to rising property taxes and comprehensive support for protecting their property tax interests. We offer free help with homestead exemptions and will never charge a fee for this assistance. We believe in giving the maximum benefit to the people of Texas, and believing that getting a helping hand with this most basic of reduction techniques is the least we can do.
In addition to exemption support, we offer premium appeal services. When you sign up with us, you are given a client success consultant . More than a customer service person, your consultant will act as your main advocate and point of contact. They will communicate with our tax professionals, hearing experts, and attorneys, and will keep you updated throughout your entire case. In addition, we can arrange a concierge visit to your home, where one of our staff members will look over your property and advise you on any issues. They can also advise on exemptions and help you apply for them. There are no fees to sign up, and you will only be charged a percentage of your savings if we are able to lower your property taxes.
Frequently Asked Questions About Inheriting a House in Texas
Q: Can I appeal if I plan to sell or rent out the home?
A: Yes, and many property owners do appeal the taxes on their rental properties every year, particularly because rental properties generally do not qualify for homestead exemptions.
Q: I have legal ownership of my home, but the appraisal still lists someone else. What can I do?
A: You can file a property tax appeal by the May 15 deadline. If the deadline has passed, you can instead file a correction of the appraisal roll, which can remedy issues such as missing exemptions or an incorrect name on the appraisal.
Q: Does Texas have an inheritance tax?
A: No, Texas does not have estate or inheritance taxes.
Q: My spouse inherited a property, but we already have a homestead exemption for our original home. Can they file a separate exemption?
A: No, married couples are limited to one primary residence and homestead exemption.
