Texas Property Taxes

Texas does not have a state income tax; however, the Lone Star State has some of the highest property taxes in the nation, ranking No. 9 in overall levies. This can come as a shock to many who expect Texas to be a low-tax state. While this produces extensive sticker shock for new businesses, many homeowners are also caught off guard. One of the rare blessings is that Texas taxes are generally straightforward and do not involve complexities such as assessment ratios and equalization factors, which are common in many other states, such as Illinois or New York, which also rank among the states with the highest property taxes.

Property Values

Taxes in Texas are based on property values. There are three distinct types, each building on the previous one. The first is the market value, which is what the central appraisal district (CAD) of a county believes the home would sell for on the open market. Next is the appraised value, which is the market value constrained by any caps, such as the homestead appraisal cap. Finally, there is the taxable value, which is the appraised value that has been lowered by any exemptions. This is the figure that tax rates are applied to and is used to calculate tax bills.

Mortgages and Property Taxes

If you are a first-time homebuyer, you probably have a mortgage. In Texas and most other states, property taxes are often included in monthly mortgage payments through a escrow account. However, just because they are hidden, that does not mean that property taxes are without effect. As they become part of your mortgage bill, you are paying them every month. Property taxes paid through a mortgage are held in an escrow account and used to pay the bill at tax time, though this is handled by the mortgage company.

Because taxes are tied to property values and the real estate market, they can fluctuate significantly every year. This means that your mortgage will increase when your property tax obligation rises. This can have an impact on even fixed-rate mortgages, as the percentages associated with the escrow account will still increase because of market forces. This can be an unseen or unthought-of cost for many first-time homebuyers.

Texas Tax Rates

There is no central property tax rate for Texas or a county. Instead, there are dozens of taxing bodies in each county that contribute to the tax rate. This includes school districts, MUDs, and city tax rates. Since each of these bodies needs taxes to fill their annual budgets, tax rates can often increase annually. The largest source of property taxes is school districts, and they often make up the lion’s share of a homeowner’s tax burden.

Lowering Property Taxes

While Texas does have high taxes, there are a few ways that these can be mitigated and brought down. While tax rates cannot be lowered, the values used to calculate taxes can be. The two options to achieve this are exemptions and property tax appeals. These can also be used together to maximize savings. It should be noted that this is only for taxation purposes, and exemptions and appeals will not impact the resale price of your home.

The Homestead Exemption

The first mistake most first-time homeowners make is not filing a homestead exemption. This is a relatively easy process and can save a homeowner hundreds or thousands of dollars a year. The Texas homestead exemption removes $140,000 of a home’s value from school taxes. In addition, many counties and taxing bodies offer further discounts, though not all do. These optional exemptions can help a homeowner save further on their school taxes, or grant reductions to the likes of MUD taxes. As each county or taxing body can be different, the homestead exemption can have a varied impact. However, it is always the easiest way to achieve significant tax reduction.

In addition to the reduction, the homestead exemption also carries a homestead cap. This means that the appraised value can never grow more than 10% per year. The market value of a property will change every year, thanks to the real estate market, and the cap prevents the appraised value from growing as quickly. The cap alone can save hundreds of dollars a year and causes the appraised value to grow more slowly over time.

Qualifying for the Homestead Exemption

In order to qualify, your new home must be your primary residence. You cannot have more than one homestead exemption at a time, and married couples cannot have two separate ones. For instance, if a married couple owns two homes, they can only use the homestead exemption on one of them. It also cannot be used on homes that are used as rental properties or other commercial purposes. To prove your ownership, you must have a deed, a state-issued ID matching the address, and other paperwork, such as a mortgage.

Other Homeowner Exemptions

In addition to the standard homeowner exemption, other exemptions may provide additional savings. A person with disabilities can get an additional $60,000 exemption. People over 65 can as well, though they can only use the over-65 or disabled person exemption, not both. Either of these exemptions will stack with the general homestead for a total exemption of $200,000. Like the homestead, many of these exemptions also offer additional local benefits, depending on the county and taxing bodies.

Property Tax Appeals

Another option for homeowners is the ability to challenge the values assessed by the CAD. Property tax appeals dispute the attributes, information, or value of a home, which can potentially lead to significant reductions. Many new homeowners simply accept the values that they are given, if they are even aware of them, particularly when thier property taxes are paid through a mortgage escrow account. A home could have issues that the CAD is not aware of, such as damage, deferred maintenance, or other factors that lower its taxable value. They are often unknown to the CAD, which will continue to appraise the home at a higher price. A property tax appeal can fix that by proving the issues to the CAD.

The appraisal of the home could also be inaccurate when it comes to the size, age, or number of rooms. Many appraisals will also include nonexistent improvements, such as porches, gazebos, swimming pools, or garages. Another issue that new homeowners must be aware of is that the wrong name could be listed as the owner, such as the previous person who lived in the home. The appraisal could also be overvalued or unequal compared to neighbors. Under Texas law, every home with similar characteristics in a given area must be appraised equally and uniformly. However, homes are often assigned significantly different appraised values.

Appeal Evidence

In order for an appeal to be successful, there needs to be solid evidence that matches the grounds used to appeal. For issues of incorrect data, such as ownership or acreage, this can be easily shown with official documents. When a property is overvalued, the homeowner will need to take photographs of issues, use repair estimates, and other documents to demonstrate how much work a home needs. For unequal appraisal, this can be demonstrated by collecting appraisals from homes in your neighborhood with the same characteristics such as size, age, and condition. Recognizing that there are issues to appeal and the right evidence to gather can be tricky, which is why many homeowners choose to go with professional help.

O’Connor Offers Help with Exemptions and Appeals

If you are a first-time homeowner and need assistance, we at O’Connor are here to help. We file homestead exemptions for you for free, with no surprise costs later. By getting this basic step done, we can save you significant money. When you enroll with us, we will also review your appraisal every year to see if there are any issues that need to be protested. We do this by analyzing your appraisal with data-driven techniques, spotting values or issues that might have gone under the radar.

We will file an appeal on your behalf and use our proprietary databases to find any comparable properties that could show the true value of your home. We will also collect the evidence needed to demonstrate just how much your home is worth. Upon signing up, you are given a client success consultant, who acts as your primary point of contact. They will keep you updated on your appeal’s progress and act as a go-between with you and your hearing professional. We will represent you at every hearing, giving you the best shot at a reduction. There is no cost to enroll, and you will only be charged a portion of your tax savings if we are able to lower your property taxes.

Frequently Asked Questions About Inheriting a House in Texas