Property taxes should go down when property values go down, right? Unfortunately, the math isn’t always so simple. Even when sales prices reflect falling values in Texas on the active market, as they did in the latter months of 2023, your specific neighborhood might still have increasing market values as individual homes get sold. However, most homes have homestead caps in place, acting as a buffer against the rise and fall in the market.
Purchases from 2022 and the preceding years also have ripple effects on how central appraisal districts calculate the value of homes now. Long-term historical performance and the current economic situation both affect the market value of your home year after year.
Gaining a better understanding of the current real estate trends and recent changes to how property taxes are calculated can put you in a stronger position when you’re prioritizing tax reduction strategies. Not only will you have a clearer understanding of all the levers and pulleys that go into determining your tax bill, but you can also avoid falling into the trap of thinking lower sales values guarantee a lower tax bill.
Are There Falling Values in Texas?
The answer to this question is complex. After all, yes, there are broad regional and smaller local trends regarding decreasing average and median sales prices. But that doesn’t mean that the drop in Texas house prices affects the tax bills of every homeowner. The following trends can impact the rise and fall of market values:
- Summer is the peak home-buying season, and prices rise accordingly. As a general rule, homes are more expensive in the summer and have lower prices in the winter (and you can see the seasonal wobbles in the median home prices in the Austin, Dallas, and Houston markets).
- Interest rates drastically impact the buying power people have. When the interest rate is 7.5%, buyers can afford a $350,000 mortgage for $2,447 a month. But when the interest rates are 5%, they can afford a $455,900 mortgage for the same monthly payment. Naturally, homes that get sold during periods with high inflation rates are going to have lower prices than when rates are more favorable.
Related: Tax Protest Strategies: How to Lower Your Property Taxes Effectively
While the answer is ‘some places, yes,‘ the practical answer for most homeowners is ‘no.’ But that doesn’t mean you won’t see big changes in your property tax bill.
Why Property Tax Bills Might Be Going Down Across the State
When you pay your property tax bill in January, it’s important to remember that you’re not paying a bill based on today’s value; you’re paying the value that the county calculated over a year ago. So homeowners reviewing their property tax bill in January 2024 are seeing numbers from January 1, 2023. This is an important thing to keep in mind as you’re reviewing your property tax bills and setting expectations for the future.
Also, in 2023, the Texas legislature approved measures that impact homestead exemptions, non-homestead property values over time, and the property tax protest process—and Texas voters approved them. Homeowners should have seen those falling values in Texas applied to their 2023 property tax bills, and we’ll certainly see them from the start in 2024. Here are the main changes that can reduce your bill:
- The homestead exemption rose from $40,000 to $100,000 for school district taxes. If you live in a city with a school district levy of more than 1%, that’s an automatic reduction of at least $1,000 on your property tax bill.
- If you have a non-homestead property, there’s now a 20% cap on property value increases. There are some caveats (it doesn’t apply to all properties, won’t apply to properties above $5 million in value, and will only be in place for three years unless it’s approved again), but it should introduce stability to property tax payments if you own a non-homestead property.
- There’s a bit more transparency regarding who is on the ARB board, and more officials have to be elected instead of simply appointed. This won’t directly result in savings but will likely have long-term benefits.
- School taxes have been lowered, which further reduces the obligations homeowners have faced in previous years
These changes mean your property tax bill may have actually decreased from the previous year’s, especially if you live in an area that’s seeing falling values in Texas real estate.
New Exemption Amounts and Taxable Value Caps Might Not Keep Your Tax Bill Low for Long
However, the sudden decrease or flatline of your property tax bill can be a bit of an illusion. The jump in exemption savings by approximately $600 can quickly get overshadowed if your property increases $30,000 in value over time. The most important factor to watch to make sure you see property tax savings—or at least a more reasonable, slow increase in your property’s value—is the appraisal value. Here’s why:
The county appraisal district office calculates your home’s ‘market’ or appraisal value every year.
Sometimes, they directly appraise your home, and sometimes, it’s through calculations based on the market activity of comparable homes in your area. That means this number can quickly become distorted.
Now that the market isn’t growing as fast, any calculations that overly emphasize market values from the peak buying season artificially inflate the value of your home, resulting in unfairly high taxes. Your home is also being compared to neighboring properties that were renovated and made market-ready—that’s not fair or accurate either.
Because the taxable value directly controls homeowners’ tax bills, the appraisal value usually falls out of sight for most homeowners.
This means it can climb out of control without you realizing it, especially if you have a homestead exemption cap protecting you from that climbing valuation. But what this means is you might, after several years of owning a home you purchased for $150,000, have an appraisal value of $350,000 and a taxable value of $220,000.
But if the market’s falling values in Texas slow to a complete halt, you won’t see any tax relief for years. Your property tax bill will keep climbing until your taxable value equals your appraisal value.
Related: Property Taxes in Texas: How to Keep More Money in Your Pocket
Suppose the market falls and then holds steady for years, putting your appraisal value at $340,000 and your taxable value at $220,000. This is how that home’s value may change during each subsequent year from that point onward:
- (appraisal value) | (taxable value)
- $340,000 | $242,000
- $340,000 | $266,200
- $340,000 | $292,820
- $340,000 | $322,102
- $340,000 | Finally, $340,000
If you aren’t proactively protesting the appraisal value every spring, it could be years before you access any cost reductions from a slow market.
How to Keep Your Appraisal Value Low and Maximize Savings with Falling Values in Texas
Homeowners can’t control the market. Between slower market activity and savings from the recent changes to property taxes, you’ll get temporary tax relief to offset the property value increases over the past few years. But those solutions aren’t permanent. Instead, it’s important to protest your property taxes every year and make sure the market values calculated by the appraisal office and the taxable values stay as low as possible.
At Home Tax Shield, we help homeowners manage the property tax protest process. We can file the paperwork every year, represent you in hearings and communications, and fight for your right to fair property taxes. Sign up today to be ready for the property tax protest season.