Purchasing a new home is a big accomplishment. But it comes with a lot of new financial responsibilities: paying the closing costs on the home, managing the mortgage, paying property taxes, and keeping up on maintenance and repairs.
At the same time, there are a lot of financial programs designed to help homeowners with those costs, including tax breaks for mortgage interest, property tax exemptions that lower your property tax bill every year, and even local or state grant programs for making improvements.
The more you know about each avenue of lowering or managing your home-related expenses, the better you can use those programs and stay comfortably within your budget. Start by learning everything you can about property taxes for your residential property, including what property taxes you may owe as part of your closing costs, the property tax exemptions available to you, and additional steps you can take to reduce your property tax bill every year.
Property Taxes: What to Expect As Soon As You Buy a Texas Home
If you’ve just bought a new home in Texas, congratulations! Finding a home you love and having your offer accepted can remove a lot of weight from your shoulders. But along with your down payment, inspector fees, and assorted closing costs, there are a few ways property taxes can start immediately impacting your finances. Here are some costs and calculations to keep in mind as you settle into your new home:
Prorated Taxes
In Texas, property tax bills go out in October and are due in January. It’s your title company’s job to make sure you own your home’s title free and clear—and that includes there not being any property tax liens on the property. At closing, you may owe the seller a portion of the annual property taxes. Alternatively, depending on the bookkeeping, they may owe you a credit back!
Escrow Account
If you have a mortgage on your home, then the mortgage payments you make each month probably have three portions: the mortgage itself (comprising the principal and the interest), your house insurance, and an approximately 1/12-sized portion of your estimated property tax bill.
Related: Homeownership in Texas: Mortgage Payments, Taxes, and Home Values
Your lender will collect and hold the tax portion of your monthly payment in an escrow account, and that collected money is used to pay the bill. This makes your monthly spending a bit bigger, but it means you don’t have to worry about a sudden multi-thousand-dollar bill due at the end of January.
A Jump In Anticipated Property Taxes
Your property taxes are likely to be higher than the property taxes the previous owner paid, even compared to the last amount they paid. Why? There are three main factors:
- The selling price of the house raised the assessable value of the property.
- Your city may be in the middle of a high-demand real estate market. Many Texas areas are, and that’s raising property taxes for everyone.
- The cap preventing a sharp increase in the assessed property value went away. Home values are capped at ten percent increases if the property has a general homestead exemption, and your property doesn’t have one in place, or it has been reset.
What Are Texas Property Tax Exemptions?
Residential properties in Texas are eligible for tax exemptions, which operate as discounts for some or all of the tax levies you’re obligated to pay. Depending on your or your spouse’s individual circumstances, such as a disability or owning this property as a primary residence, you qualify for certain reductions in the property taxes you must pay. There are two key benefits homeowners can receive from property tax exemptions. They are:
1. Reduce Your Property Tax Bill
This first benefit is the biggest and most obvious: you can reduce your tax bill by making part of your home’s property value “off limits” in tax calculations. For example, homestead exemptions now take $100,000 out of the calculation of your school district levy payments; a 100% disabled veteran exemption removes 100% of your obligation to pay.
Let’s take a closer look at what sort of savings you can anticipate from your property tax exemptions. Your property taxes aren’t just determined by a simple formula of [tax rate] x [property value] = tax bill amount. Instead, for most homeowners, it’s made up of four different levies: school district taxes, city taxes, county taxes, and junior college taxes, each of which will have a different rate.
The majority of exemptions only affect one or some of the levies, not the cumulative tax rate. While these strategies are still valuable, they need to be combined with annual property tax protests—which can change the entire appraisal value of the property in regard to every levy—for maximum savings.
2. Control The Tax Bill Total For Years To Come
Many property tax exemptions also cap potential increases, so people on a tight budget or a fixed income don’t have to worry about price surges in the future. For example, a homestead exemption ensures that your tax appraisal district can’t raise your home’s assessed value by more than 10% after you’ve lived there for a full calendar year (excepting any improvements you made to the property). Also, provisions for qualifying homeowners aged 65 and older cap school district tax payments so they never get higher.
Four Main Texas Property Tax Exemptions for Homeowners
While all exemptions help to lower the taxes of qualifying properties by exempting a portion of the property’s value from calculations, they use different mechanisms to do so. They also have different qualifying criteria. Take a closer look at the four most common property tax exemptions to understand the specific benefits and whether you are likely to qualify.
1. Homestead Exemption
Homestead exemptions are the primary exemption for homeowners. If you live in a Texas home and use it as your primary residence, then you likely qualify for this form of tax relief. It exempts, or removes, $100,000 of your property’s value from school district tax calculations.
Related: The Best Ways To Get Texas Property Tax Relief
Another key benefit of the homestead exemption is one we discussed earlier: the 10% cap. Appraisers recalculate the value of your home every year; sometimes, such as in recent years, that property value may go up by 15, 20, or even 30%. If that happens, the taxable value of your home will only go up by 10%.
2. Disabled or Senior Exemption
This is often considered a supplement to your homestead exemption. If you are over 65 years old or have a qualifying disability, you can receive an additional $10,000 exemption on your school district taxes. This saves you approximately another $100, depending on the tax rate. However, you can only have one of the two exemptions at a time.
Senior exemptions, or over-65 exemptions, carry additional tax savings benefits. These include limitations on smaller levies within the four broad categories and a cap on any increases in school district taxes. These measures are designed to help homeowners living on retirement benefits or a fixed income. Seniors can also apply to have their property taxes deferred.
3. Disabled Veteran Exemption
If you are a veteran with a disability, you can qualify for additional property tax savings. Depending on the VA rating of your disability, you can exempt up to $12,000 of your home’s value. If you have a 100% disability rating, you can often exempt the entirety of your property value. Also, unlike homestead exemptions and disabled or over-65 exemptions, you can apply this to any one property in Texas (even if it isn’t your primary residence).
4. Ag Exemption
Despite its name, the ag exemption isn’t an exemption. It’s a different way of calculating your taxes. The majority of residential homes are appraised based on their market value, or the estimated sales price they would fetch on the market as of January 1 of a given year.
If you have agricultural land attached to a homestead that’s your primary residence, you can apply to have your home appraised based on its production value rather than its market value, which significantly reduces your property tax obligations.
Another Route to Texas Property Tax Relief for Residential Homebuyers: Protesting Your Property Taxes
Property tax exemptions offer partial reductions of specific levies, so while they are an important savings opportunity, they don’t offer all the savings you might be looking for. You can also protest your property taxes every year to try to sizably reduce your property’s appraised value.
In the spring of every year, the appraisal district office for your area releases new property appraisal values. If you believe the amount is inaccurate, you can file a protest notice and make an argument that the appraisal value should be lower.
The finalized appraisal value is sent to the local tax assessor’s office, where your home’s taxable value and tax bill are calculated. So by lowering your home’s appraised value, you can lower your tax obligations across the board.
Get the Support You Need to Manage Your Property Tax Protest
At Home Tax Shield, we help homeowners protest their home’s assessed value so they pay a fair property tax bill. We can manage the process of filing your protest, providing evidence about what your home’s assessed property value should be, and meeting with county assessors or officials on your behalf. Sign up today to start maximizing your potential property tax savings.