Texas property tax law changes every few years. See the latest posts for the most up-to-date information.
For those living in Texas and owning a home, it can be frustrating to watch what you’re paying in taxes increase year after year. Property tax is the cost of living in the state, though. Texas property rates are high and maybe some of the highest in the country.
What makes this more challenging to manage is having a home that’s appraised at too high a rate, causing you, the property owner, to pay more than you should in taxes each year. Yet, many people are unsure how property tax is calculated in Texas, so they don’t even consider this issue.
If you own a home in the Lone Star State, it’s critical to learn the ins and outs of managing property taxes. You have rights as a property owner to have fair taxation. This means understanding why your home is valued the way it is, and if the valuation isn’t accurate, appealing those decisions.
How Property Tax Is Calculated in Texas
Property taxes are a primary source of revenue to help pay for the services provided by local governments. They help fund schools, upgrades to water systems, and even police forces in the state. There’s no doubt that taxes are important and necessary. However, if you don’t know how property tax is calculated in Texas, that could mean you’re paying more than your fair share. Let’s take a closer look at the process.
Related: How Do Property Taxes Work in Texas?
Residential Property Appraisal
The first step in determining property tax is an appraisal of the property. An appraisal considers the value of the home. County appraisal districts do this appraisal. They determine the current market value of the property within that county. This figure they determine is what tax rates are based on.
Typically, homes go through this appraisal process at the start of the year. Then, the appraisal review board holds hearings in May. Taxes are then calculated, and the taxing authority sends tax bills at the start of October. Property owners have to pay those bills by January 31 of the following year. We’ll discuss the appraisal and your home’s value in more detail below.
Exemptions May Help Lower Expected Costs
Exemptions are specific findings that help lower the value of the property tax owed. The homestead exemption is the most common exemption used. It is available to property owners who live in their homes. This exemption reduces the property’s value by at least $25,000, reducing how much property value taxes are levied on that property. However, this exemption is only required to be offered by school districts.
Here’s an example. If you own a home determined to be worth $300,000, and you receive the exemption, the school district tax rate is levied on just $275,000, not on the property’s full value.
Seniors over the age of 65 may apply for the same homestead exemption; however, they receive an additional exemption of $10,000.
Texas Property Tax Rates Are Set
The next step in learning how property tax is calculated in Texas is to understand how the tax rate is set. The tax rate is what’s applied to the value to determine how much a property owner must pay.
Every year, all property tax rates go through a recalculation process. This recalculation happens after all appraisals are completed for the county. The rate is based on the total revenue needed and the present property value. In short, property taxes are a percentage of the home’s appraised value.
Here’s an example. If you own a home worth $100,000 and live in an area with a tax rate of 2%, that means that you would owe $2,000 in annual property tax.
Yearly budgets determine the rates paid by you for cities, school districts, and counties and how much revenue they need to meet their expected costs.
In Texas, the state does not levy the tax rate itself. Rather, it is set by local cities and counties as well as school districts. That means that property owners are on their own to know their tax rate (though it is determined for you and a bill is automatically sent). Nevertheless, it can be confusing to know if what you’re paying is your fair share or if you are overpaying.
Most of the time, tax rates do not have a drastic change year-to-year, but they can slowly increase. As they do, it can be frustrating for you, a property owner, to know how much you need to pay.
How Is Your Property’s Value Determined?
Now that you know how property tax is calculated in Texas, take a step back and learn how the value of your property is set. This is done by county appraisers.
There are very specific rules of conduct to be followed when determining property value. The rates must conform with the Uniform Standards for Professional Appraisal Practice, determined by The Appraisal Foundation. Congress has authorized this as a guide to setting property value.
The first step is for the appraisal district to create a list of taxable property. It includes a description of the property, the owner’s name, and the address. Often, a mass appraisal is conducted based on the size of the property, the type of construction present, and how the property is used.
This type of data comes from the most recent sale of that property. This determines what the market value of the property is. It takes into account a number of different factors, including the location, age, and any specific or unique characteristics of the property.
Considering this, the county appraisal district uses one of three ways to set a value for the property. These may include:
- #1: Market Approach: In this method, the district uses the sales prices of homes with some of the same features to determine the value of other homes that have not been sold recently. This is done through the process of comparative market analysis. As home sale prices change, so do the values of other homes in the area.
- #2: Income Approach: In this method, the district uses income and expense data to determine the current worth of any future benefits. This method tries to determine what an investor for the property is likely to pay for it based on the future revenue they would receive from ownership of the property.
- #3: Cost Approach: This method estimates the cost to replace the building on the property should it need to be rebuilt. It determines what it would cost in today’s dollars to build a home comparable to the property’s current usage.
The appraisal district sets the determination of which method is used. This may change based on laws passed in the area.
It’s not common for the appraisal district to actually look at the home. No one drives by to see it, nor do they schedule an inspection. Rather, this determination is based not on seeing the property in person, but on existing data.
Related: How and Why to File a Property Tax Protest in Texas
How Do You Know If They Get the Calculation Right?
Probably the most challenging question for property owners, after understanding how property tax is calculated in Texas, is this one: how do you know if your home’s value is accurate? One way to do this is to consider the sale price of homes around you, including in your neighborhood, and if they have sold at the same value or lower.
Also, if you know your home isn’t in good condition, that may also help to determine the value. For example, if your property is not maintained and has structural damage or may need significant work before it could sell, that could impact the value of the property as well. The county appraisal district doesn’t have that information to determine the value.
What Can You Do If You Think It Is Not Correct?
If you are unsure of the value of the property or if you know that the value is too high for any reason, it’s important to take action. You have the ability to appeal the decision on the value of the home directly. However, it can be difficult or intimidating to go through this appraisal process on your own. It’s complicated in that it takes time and requires you to know where to file appeals and ensure that everything is done according to the schedule set. It also requires extensive documentation and, usually, a hearing to explain your argument.
Getting the Help You Need to Appeal Property Values
The best way to overcome these limitations is by reaching out to Home Tax Shield. Using data science and artificial intelligence to help determine the accuracy of property assessments, we’ll work with you to provide accurate information about the value of your property and will handle the entire protest process for you, making sure your property tax bill is fair and as low as possible, every year. Learn more about how Home Tax Shield can help you keep your Texas property tax bill lower year after year, adding up to major savings over time. Sign up with us today.