Texan homeowners often have high property taxes, but you also have access to a few strategies for lowering those taxes. One of them is protesting your property taxes—an annual action you can take to keep the county’s appraisal of your home’s market value low. Another strategy is filing for your homestead exemption and any other exemptions you may qualify for, which can lower your tax payment obligations. Using both strategies every year is the key to successfully controlling your property tax bill.
Because there are so many moving parts in how local governments calculate property taxes, it’s important to understand how each mechanism works. If you’re eligible for a homestead exemption, you get the benefits of a homestead cap. While it’s not the only tool you need to combat rising property taxes, it can insulate your home’s taxable value from sharp, sudden increases.
What Is the Texas Homestead Cap?
Homestead caps are one of the two main benefits homeowners receive when they file a homestead exemption for their property. This is a form of tax relief available to Texas residents who own and live in their homes. If you qualify, you can file this exemption a single time, and it applies to your property year after year unless you lose eligibility. Two main benefits are:
- A $100,000 exemption on your school district tax levy. For example, if you have a $300,000 home, your school district taxes are calculated as if your home were valued at $200,000. (All other levies, such as city taxes, county taxes, and junior college taxes, remain the same.)
- A cap on the increased value of your home. A homestead cap prevents your home’s taxable value from increasing by more than 10% each year. For example, if your home has a taxable value of $400,000, it can only increase to $440,000 (even if the market value has increased more than that). The only exception is if you’ve made renovations or improvements to the property, and the value of those changes will be added on top of the increased value.
Related: A Guide to Maximizing Homestead Exemption and Cap Benefits
There are several benefits tied to a homestead exemption, and there are also different types of exemptions that your home may qualify for. However, the homestead exemption is the most common one.
The Benefits
Homestead caps are incredibly valuable tools for homeowners, especially if they plan to own their home for a long time. Here are some of the advantages they present over not having a homestead cap in place.
- You’re protected from big market increases. County appraisers evaluate the market value of your home as of January 1st of the given tax year. Over time, your home’s market value might have grown by 10% to 20% in the last year alone. When you’re not selling your home, that increased market value only makes your tax bill higher. When you have a homestead cap and the market value has increased by more than 10%, county officials can only add 10% for the purpose of calculating taxes.
- Your property tax bill is predictable. Whether you pay your property taxes directly or through an escrow account, predictability matters. For direct payers, you can budget with more confidence so you have enough money saved for the January 31st payment deadline. For homeowners with an escrow account, your lender estimates your property tax bill and adjusts your mortgage payment accordingly. If they underestimate it one year, your mortgage will generally increase substantially in the next year to make up for it.
- A lower property tax bill. Ultimately, the biggest benefit is that you pay less. Suppose a $300,000 homestead faces a three-year stretch of market increases of 12%, 18%, and 15%, a likely scenario in Texas’s popular regions. The market value and the taxable value would look like:
- $336,000 and $330,000
- $396,480 and $363,000
- $455,952 and $399,300 — by the end of this time, the homeowner’s taxable value is $56,652 less than it otherwise would have been.
Filing your homestead exemption as soon as possible and making sure it stays in place every year is a great strategy for reducing your property taxes, but it’s not a comprehensive approach on its own.
Why It’s Not Enough
A homestead cap has some limitations. It never puts you at a disadvantage, but it also doesn’t cover the same ground as protesting your property taxes. Here’s why every homeowner should file for an exemption and pursue other strategies.
Homestead Exemptions Don’t Change Your Recorded Appraisal Value
Homestead caps and the $100,000 school district tax exemption take effect after the county appraisers calculate your market value, so the unadjusted value is still part of your property’s historical profile. If you consider the above scenario of the property with a $455,952 recorded market value and a $399,300 taxable value, both numbers stay on your property record.
Related: A Texas Homeowners’ Guide to Protesting Taxes: A Step-by-Step Approach
Some years, this won’t matter. But there are two common scenarios when having a high appraisal value hurts your potential savings.
Scenario 1. If it’s a slow market, your taxable value will continue to go up 10% until it’s the same as the appraisal value.
Suppose the market slows down and homes in your neighborhood only increase by 5% each year. A 5% increase in the market value doesn’t mean you’ll only see a 5% increase in the taxable value. Instead, you could see 10% annual increases until your taxable value reaches the market or appraisal value on record. That’s the ceiling as taxable value can never be higher than the appraisal value.
Scenario 2. If you rent out your home, you’ll lose the homestead exemption, and your taxes are based on your county appraisal value.
You never know what the future holds, and you may decide to move while holding onto your current home. But once it’s no longer your primary residence, that home no longer qualifies for the homestead cap. Calculations don’t start from the taxable value; they start from the appraisal value. So if you just have the homestead cap and spent the last several years letting your appraisal value grow unchecked, your property taxes will very suddenly balloon. In fact, if you’ve held onto the same property for 20 years, it’s not uncommon for your appraisal value to be 50% or even double your home’s taxable value.
Supplement Your Homestead Exemption Benefits With an Annual Property Tax Protest
Every Texas homeowner has the right to protest their property taxes and fight for a lower appraisal value. It’s an annual process that takes place in the spring, and doing it every year offers you three crucial checks on the system.
Argue Down Accidental Discrepancies and Inflation
Appraisers can make mistakes. If you consistently protest your property taxes every year, you’ll be able to catch those errors, inaccuracies, and generalizations.
Appraisers May Be Unfairly Comparing Your Home to Flips and Recently Sold Homes
Appraisers use information from multiple sources to calculate market values, and that includes comparing your home to properties in your area that have recently been updated, upgraded, or even flipped for a profitable resale. While interior updates are not included in the calculation, this is not a fair comparison because all of the relevant renovations can significantly increase the value of those homes, and your home may not have those same external updates. When you protest, you can contest such unfair comparisons.
Keep Your Appraisal Value in Lockstep With Your Taxable Value
Consistently protesting your property taxes means you’re keeping your appraisal value as low as possible every single year. There may be some years where the appraisal review board agrees, some years where they disagree, and other years where they offer a compromise. But every year you successfully lower the record of your market value, the smaller the gap will be between your appraisal and taxable value. You’re protecting your future finances.
Get Expert Help for Successful Property Tax Protests
The homestead cap is valuable, but it’s often not enough. At Home Tax Shield, we give homeowners another piece of the puzzle by representing them in property tax protest hearings and managing the entire process on their behalf every year. Sign up once, and we’ll represent you year after year to fight for lower property taxes on your home.