The Texas housing market is booming and new constructions are fueling a large part of the market. 22.5% of occupied homes were built in 2010 or more recently, and around 33% of home purchases are for newly built homes. You may already know that new homes tend to be more expensive than older homes—the new materials, updated styles and layouts, and in-demand locations all mean a higher purchase price than older homes that feature smaller layouts, older building materials, and a list of repairs.
But, whether you’ve bought a home before or not, you may be surprised how the newness of your property can impact the property taxes you’ll pay every year. Both new constructions and existing homes have property tax obligations, with the effective state average being 1.6%. But new constructions have additional complexities that can increase your property taxes and which you need to stay ready to respond to so you can fight for fair property taxes and a lower bill at the end of every year.
The General Norms for Texas Property Taxes: A Quick Overview
Texas property taxes are assessed and managed on a local level, so every municipality has a slightly different way of doing things. You will encounter different levy rates for different projects, slightly different norms and protocols for accessing your property details or filing notices, and different bureaucratic pathways for getting your questions answered and learning more about property taxes for your specific address.
That notwithstanding, there are some elements of property taxes that are the same across the state, no matter where you live. These include the following:
Main Source of Funding
Property taxes are the main source of funding for most local projects and services. Texas doesn’t have state income taxes, so local governments rely on sales taxes and property taxes. As a result, Texas property tax rates are higher than those of the majority of other states. You’ll pay levies for school district taxes (approximately 1% for most districts), city taxes, junior college taxes, and county taxes—all adding up to around 2%.
Homestead Exemption
You can file for a homestead exemption if your property is your primary residence. Whether you have a new construction or an older home, you can file for a homestead exemption and protect $100,000 from school district tax calculations. You don’t have to refile a homestead exemption every year, but it’s worth checking on to make sure your exemption is still in effect.
Protest Your Property Taxes
You can protest your property taxes to keep them from climbing too high. Every year, the central appraisal district for your area recalculates your home’s appraisal value, which is then used to calculate your tax bill. But if you think that the appraisal value is wrong—maybe the appraiser didn’t consider the size or age of your property, there are easements affecting the value of the property, or the final number is surprisingly high—then you can file a protest notice and argue for a lower value.
Related: How to Choose a Property Tax Protest Company
The appraisal district may agree, may try to find a compromise, or may stick to their number until a formal hearing. At that point, an appraisal review board makes a final ruling on what your home’s appraised value will be.
How Property Taxes Are Changing for 2023 and Beyond
While those three core elements are true across the state, there are also some statewide changes pending final approval in the ballot box. This November, voters are deciding whether or not to allow an amendment that will let the state legislature enact changes to the property tax code. The main changes are:
- It increases the homestead exemption amount from $40,000 to $100,000, which will increase annual savings by approximately $600 a year for eligible property owners.
- It creates a three-year pilot program that caps the appraisal value increases of non-homesteaded properties at 20%.
- A portion of your local appraisal review board members will be voted into the position instead of being appointed or selected.
Provided the amendment passes, these changes will be retroactively applied to your 2023 taxes. But despite the potential increase in savings, new construction owners should still pay close attention to their property tax bills to ensure you aren’t overpaying or that additional payment obligations don’t slip below your notice until next year.
4 Factors That Will Affect Your Property Taxes on a Newly Constructed Home
For many homebuyers purchasing a new construction, you can face unexpectedly high property taxes during the first few years, and changes will be turbulent. Consider these four things that can impact your property taxes from the start:
Factor #1: All the Surrounding Properties in the Development Will Be New, So No Older Homes Will Depress the Appraisal Values
Appraisal districts are required to actually appraise the value of a property at least once every three years. But for the other two years, they use calculations and updated values for comparable properties to modify your property’s records. So the homes near you play a pivotal role in what the appraisal district thinks your property’s value should be.
However, most new properties don’t exist in a vacuum. Instead, new constructions typically sit in new neighborhoods and developments, surrounded by similarly new properties. Because of this, you don’t have decades of adjacent properties with lower values that can help moderate your own home’s appraisal value or give you data to appeal the calculations.
Factor #2: The Precedent Is Getting Set Right Now—Valuation Matters
However, that same turbulence means you have a unique opportunity: if you protest your property taxes as soon as you can, during your first year in the property, you can set a lower baseline appraisal and assessment value. Then, when appraisers get started on next year’s calculations, you’re operating from a lower starting point.
To do this, gather as much evidence regarding low property values near you, easements, and factors that reduce the likely appraisal value of your home. Texas is a non-disclosure state, so appraisal districts shouldn’t have direct access to property purchase prices. As a result, you can even argue that the property value should be lower than what you paid for the property.
Factor #3: You May Need to Pay a Year’s Worth of Property Taxes Upfront Depending on the Mortgage Agreement and Lender
It’s important to know and understand both the property tax rates in your area and the appraisal value of your property; this information will be vital every year as you protest your property taxes. But when you first buy the new construction, you may have upfront payment obligations.
Depending on the mortgage loan terms and how property taxes were handled when the developer owned the property, you may owe a year’s worth of property taxes upfront. The developer may have deferred the taxes and will add them to the negotiated closing costs of the home. Alternatively, your lender may require a year’s worth of estimated property taxes to fund your escrow account upfront.
Factor #4: You May Also Have MUD Taxes, Not Just County Property Taxes
Texas communities are rapidly expanding. Not only are new homes being built onto small pockets of newly rezoned land in established suburbs, but large segments of raw and undeveloped rural land are becoming brand-new neighborhoods.
This means that all the infrastructure—electrical systems, city and county plumbing, roads, and more—are all being funded by the developer. When this happens, the developer will get paid back for the investment through MUD levies, or Municipal Utility District (MUD) taxes.
Related: Homeownership in Texas: Mortgage Payments, Taxes, and Home Values
These taxes can be incredibly high because they’re fueling a lot of infrastructure construction. You may also still be responsible for paying county, school, and junior college taxes that apply to the area.
However, you may not be responsible for city taxes. Most MUDs fall outside of city limits, so city taxes don’t apply. If a city does annex a MUD, the city takes on the remainder of the money the MUD taxes needed to repay; however, there is a precedent of cities charging newly annexed homeowners a fee to cover part of the assumed costs. Check with your realtor and your lender about the specifics before purchasing a home.
How to Make Sure You Pay Fair Taxes on Your Newly Constructed Home
Knowing all the different factors that can make a new construction have uniquely high property taxes puts homeowners in a better position to protest taxes and prepare for the costs. Take these five actions to protect yourself from unfairly high taxes and sudden expenses:
- Get appraisal details every step of the way. If your lender requires a third-party appraisal, for example, hold onto that documentation. It may help support your case if you believe the appraisal district unfairly overvalued your home.
- File for your exemptions as soon as possible. The sooner you have those filings in place, the simpler it will be to ensure you receive savings on your school district tax obligations and that your home’s taxable value won’t increase more than 10% a year after the first full year of living at that residence.
- Protest your property taxes every year. Make this practice a habit. By routinely protesting your home’s appraised value, you’re putting a check on the system. Even if you don’t lower the value to your proposed counter valuation, you may get a compromise; even if the appraisal district review board doesn’t lower the price, you have the peace of mind of knowing you’re paying the lowest possible amount.
- Talk to your current and incoming neighbors about protesting their taxes. When your neighbors also protest their appraised values, that helps you. You can draw on information about their successful protests to support your own case, and they can use your successful protest as evidence for their own, in turn.
- Anticipate the MUD taxes before signing on the dotted line. MUD taxes are hard, if not impossible, to change after the fact. Make sure you’re fully aware of the monthly and annual payment obligations before closing the deal.
Home Tax Shield Is Here to Help Homeowners Navigate Property Taxes for New and Old Homes
When you purchase a newly constructed home, your property taxes may have a few additional complications that make your taxes higher or more unpredictable. Taking these steps will help you understand more about your property taxes and only pay what’s fair.
You can also turn to Home Tax Shield to manage the property tax protest process. Our team can gather information about your property, file the protest notice every year, and represent you in appraisal hearings and conversations. Learn more about how we can fight to reduce your property tax bill for you every year.