The Role Homestead Caps Play in Your Property Tax Savings Strategy
In the summer of 2023, the Texas House and Senate proposed different methods of enacting property tax cuts. One of the House’s proposals focused on the homestead cap, and it would have lowered the homestead cap percentage from 10% to 5%. This plan wasn’t incorporated into the final legislation, but it still begs an important question: how much does the homestead cap weigh in on property tax bills and your potential savings?
This mechanism gives homeowners a buffer against market surges that could drastically increase annual property tax bills. But understanding exactly where it comes into play—and what additional strategies homeowners can use alongside it—can help Texans stay more in control of their taxes and budgets.
The Homestead Cap Protects Your Property’s Taxable Value From Sudden Spikes
The homestead cap is a provision available to homeowners with a homestead exemption in place on their home. Homestead exemptions are primarily known for the hefty exemption amount they provide: $100,000 of a homestead’s taxable value won’t be included in school district tax calculations, saving many homeowners around $1,000 a year. In previous years, this exemption amount was $40,000, but the recently passed legislation increased it.
There is a second benefit for qualifying properties: your home’s taxable value cannot increase by more than 10% in any given year. No matter the market, no matter the county’s appraisal of your home’s value, the assessed value will not see more than a 10% increase. This provides two easy wins for homeowners:
- Your property taxes will gain stability. In recent years, homes have seen their values increase by 20% or even 30% per year. When you have a homestead cap in place, you’ll easily save more than a property owner with a comparable home but no cap.
- Your taxes are more predictable. If you have a mortgage, you probably also have an escrow account. Your service provider estimates your likely tax bill for the current year and adds a portion of that estimated cost to your home mortgage bill every month. When you have a cap, they can more accurately estimate your property taxes. In turn, you have a more consistent mortgage payment throughout the years and can set your budget more confidently.
A Quick Breakdown of the Numbers on Your Property’s Value History
There can be a bit of confusion around how the homestead cap works. With your property tax bill in front of you (or your online property history from the central appraisal district for your area), you’ll see a lot of different values in your property’s Value History section.
Toward the righthand side, you’ll see three columns:
- Appraised: This is the value your county appraiser calculates. Homestead caps do not directly affect this (but property tax protests do).
- Assessed: This is the value calculated by your local tax assessors. Called either the assessed value or the taxable value, this is what the assessors use to calculate your final property tax bill. This is also where the homestead cap operates. Your assessed value for the current year cannot exceed 110% of the previous year’s assessed value.
- HS Cap Loss: This is the difference between your appraised value and the assessed value. Basically, it’s the untaxable value of your property, thanks to the homestead cap.
While the homestead cap only directly affects your assessed or taxable value, it’s not the only tool homeowners have to keep their property taxes in check.
Property Tax Protests Lower Your Property’s Appraisal Value
Every property owner in the state has the right to protest their property’s market value. By providing evidence that the county appraiser calculated this value incorrectly, you can fight to lower it. The process starts with homeowners filing a protest notice, and it often ends in front of an appraisal review board (ARB). The ARB listens to arguments from the property owner and the appraiser, considers the evidence, and makes a final determination of what the appraisal value should be.
If Your Property Tax Protest Is Successful, the Homestead Cap May Not Even Trigger
The most successful property tax protests convince the ARB that the market value has gone up very little. This is difficult to do in today’s markets. Property values have radically increased; the DFW market alone saw a 38.8% median home price increase over the past three years. Though the market is beginning to stabilize.
If you successfully present your case that your property has only seen an 8% increase in value, then the ‘Appraised’ column on your home’s history will have a value that only increased by 8%. Similarly, the ‘Assessed’ column will also have a number that may be lower than it otherwise would have been. This savings opportunity has the most impact when the gap between your appraised and assessed value is small, but any reduction in these numbers can translate to hundreds of dollars saved.
Keeping Your Appraisal Value Low Has Benefits
There are two primary goals of protesting your property taxes: ensuring that your tax bill is fair and that you’re not overpaying. Even if you lower your appraised value from a 15% increase to a 13% increase—which means you’re still relying on the homestead cap—there are some important benefits:
- If the title on the property changes, the appraised value becomes the new baseline for deciding the assessed value and the property taxes. For example, suppose someone is selling a property they’ve owned for years. It’s appraised at $500,000, but it had an assessed value of $275,000. If you buy that property, you start paying taxes at that $500,000 value. By protesting the appraisal value every year, the owners could have kept that number lower. The same effect happens to your current home if you sell it or give it to your descendants.
- If you make your current home a rental property or vacation home in the future, you lose that homestead cap. The cap is only for primary residences, not second homes. By fighting for a lower appraisal value, even when it doesn’t impact your tax payments for that given year, you’re potentially saving your future self a lot of money.
Use Multiple Strategies to Keep Your Property Taxes Low
Homestead caps keep your home’s taxable value in check, but only property tax protests can help you keep your appraisal value in check. By combining these methods, you can gain financial stability and tax predictability. Sign up with Home Tax Shield where we help by managing every step of the property tax protest on your behalf.