Texas property tax law changes every few years. See the latest posts for the most up-to-date information.
The Fort Worth Star-Telegram is anticipating a cooldown in the North Texas cooling market, but that doesn’t spell relief for house buyers and homeowners across the state. House prices rose 48% between August 2020 and May of this year; the projected slump in the market still predicts a nearly 10% price increase for DFW residents (to say nothing of the housing markets in Corpus Christi and Austin).
While the rise in property taxes hasn’t been quite as steep, the correlation between rising prices and rising bills has many people uncertain about how they will budget this year’s property tax bill. If you’re also worried as you wait for your property tax bill to arrive in the mail, you might wonder if that connection is genuine — and just how much those rising house prices are digging into your escrow account. The answer is complicated: house prices affect the property taxes of newly bought properties more than they affect your property taxes if you’ve had your property for several years, but they’re still having an effect.
Here, we’ll discuss the following:
- How counties calculate property taxes
- How house prices are decided on the market
- How one affects the other
- What you can do to keep your property taxes under control
How Are Property Taxes Calculated?
Three primary factors determine property tax bills:
- The value of your property (as assessed by the county or local tax authority)
- The property tax rates and specific levies in your area
- Any property tax exemptions you or your property are entitled to
All three factors can vary based on your location and unique circumstances, so let’s take a closer look at each one:
Property Value
County and local governments manage property taxes, not the Texas state government. So the assessment process might differ from county to county; however, the mechanisms are standardized and universal within that district. Most residential (and residential/agricultural) properties are assessed based on the current market value. Counties can do this through (i) a sales evaluation, (ii) the cost method, or (iii) the income method. The primary exception is qualifying agricultural properties, assessed based on productivity values rather than market value.
Local governments recalculate your property’s value each year, a process that considers general market trends and other factors. However, the appraisal district must reappraise properties every three years.
Tax Rates
The tax authority multiplies your home’s assessed value by the property tax rate of different levies that apply to your home. The average effective property tax rate in Texas is 1.69%. Still, that number comprises multiple levies, including school district taxes, city and county taxes, junior college taxes, and others. Not all residents pay all property taxes (which we’ll discuss in greater detail below). Also, local governments can only raise budgets and their corresponding property taxes so much each year without requiring a vote.
Property Tax Exemptions
Texas homeowners can apply for multiple different property tax exemptions that change their total effective property tax rate by waiving certain levies, capping certain levies, or removing a portion of the property’s assessed value from calculations. For example, general residence homestead exemptions waive $40,000 of a home’s value from tax calculations. In contrast, provisions for disabled veterans with a 100% disability rating from the VA can waive property taxes entirely.
These factors play a role in what your final assessed property value, effective tax rate, and final property tax bill are each year.
How Are House Prices Decided?
House prices on the open market are much more fluid and don’t adhere to tight county-led processes. As an oversimplification, and as real estate agents may describe it, your home’s price is whatever someone will buy it for. Broadly, the housing market disregards the property value assessment made by your local government—or at least only spares it a passing glance. As we mentioned earlier, homes in hot Texas markets have seen a 48% price surge in approximately two years. Houses in some towns have only seen a fraction of that surge, while homes in very in-demand neighborhoods of Austin, Frisco, and Dallas have seen more significant increases.
To pull back the curtain on how house prices are set, it’s essential to know the general process home sellers (and their agents) go through. First, a listing agent may recommend a specific price or price range based on “comps:” the prices similar homes in your neighborhood have sold for in the past 90 days or so. So, for example, if five homes on your street have sold for $400,000 and all the homes are approximately the same age with the same square footage, the listing agent may recommend a $400,000 price.
Interested buyers will then make property offers based on their interest level. For example, a home buyer who loves your house and needs to move immediately may offer $415,000 to outcompete other buyers. If you accept that offer, your home will be worth $415,000. (As a brief sidenote, competitive pricing and bidding wars significantly affected how housing prices rose so quickly.) Alternatively, there may not be a lot of interest in your home, and someone may put in a low offer of $380,000. If you accept that offer, your home will be worth $380,000.
Related: How Do Mortgage Payments Change if Your Taxes Go Up?
Is There Any Connection Between House Prices and Property Taxes?
While market forces carry far more weight in the outcome of a house sale, your home’s potential market price and property taxes are connected. The numbers can, in some ways, influence each other. Let’s examine four ways they interact.
An Indirect Connection: Calculations
Your appraisal district or taxing authority does consider the real estate market when reassessing your home’s property. If there is significant demand in your neighborhood — such as five houses selling for $400,000, all in three months) — your county will see this as an indication that every property in the neighborhood is more valuable.
An Indirect Connection: Local Improvements and Services
Each county or local government determines its budget, using property taxes to pay for things in that budget, ranging from increasing the size of the fire department to building new libraries and parks. If your area has a high tax rate and many beneficial improvement projects, that can drive demand for homes in your area (which, in turn, raises both house prices and property taxes). If you look at the same cycle from a different starting point, raising house values can increase the amount of money available to cities, and they can consider new projects.
Do Increased Property Taxes Increase House Prices?
Increased property taxes do not directly affect house prices. However, homeowners who see a large tax bill with an assessed property value far more significant than the previous year’s are unlikely to set — or accept — lowball prices. This can inflate house prices, which in turn increases property taxes to some degree in the following year.
High House Prices Can Affect Your Property Taxes — Even If You Don’t Sell Your Home
This is the primary interaction many homeowners will see between their property taxes and the housing market, especially if you aren’t considering putting your house on the market. As properties become more and more in demand, their values will skyrocket, both on the county level and in the market.
Related: The Best Ways to Get Texas Property Tax Relief
Two Ways to Help Control Property Tax Increases
While the housing market and city or county budgets may feel entirely out of your control, there is good news. You can use a couple of strategies to exert more control over your property tax bill and ensure you aren’t paying more than your fair share in taxes. You can:
1. File Your Homestead Exemption
If you own your home and it’s your primary residence, you can apply for a homestead exemption. This provision has two key benefits when stopping a sharp rise in your yearly property tax bill. First, $40,000 of your home’s value is waived from your school district tax calculations. This levy is the largest for almost all homeowners in Texas, so chipping away at it can reduce your bill by a few hundred dollars. This exemption also protects your home’s assessed value: the county can’t raise it by more than 10% each year (not including any property improvements you may have made). Budgeting for property taxes is more straightforward when you face a maximum 10% increase in your assessed value each year.
2. Protest Your Property Taxes
Counties may try to simplify property taxes and ensure they don’t make errors. But mistakes happen. They might not have adequately calculated the benefits of all your exemptions. They may have raised your property’s value far more than what you think is reasonable. In these instances, you can file a tax protest form with your district, provide evidence about why the amount should be lower, and even offer a countering value. From there, your tax district will negotiate with you, accept your new number, or arrange a meeting for a more in-depth discussion.
Home Tax Shield Is Here to Help
Home prices are rising across the state, but you don’t have to accept unfairly rising property taxes. By filing for the property tax exemptions you qualify under and protesting your property taxes, you can make sure you’re paying a fair amount in taxes. If you feel overwhelmed by all the paperwork and steps of protesting your property taxes, Home Tax Shield is here to help manage the process for you. Reach out today for more information about what your taxes should be and how we can help you fight for a fair bill.