Texas passed tax relief in 2023, but many homeowners aren’t sure exactly how it will play out or how to reduce their property tax bills. The initial passage caused some confusion—tax bills went out in October 2023, but the legislature was voted on in November 2023. However, the measures were supposed to be retroactive and apply to 2023. The proposition expanded some forms of tax relief, but it also included direct tax cuts.
In essence, a lot of changes were packed into a single proposition. Now that 2024 is well underway, it’s important to know exactly how all the details will shape your property tax bill for this year and subsequent years.
Understanding the provisions isn’t just important because Proposition 4 is new; it’s also important because property taxes are such a significant expense for property owners across the state. Understanding the difference between what changed and what wasn’t improved by Proposition 4 puts you in a better position to take advantage of tax relief opportunities and strategically reduce your property tax obligations.
Why Property Taxes Matter So Much in Texas—Especially Now
Texas has some of the highest property taxes in the country. Therefore, when you own property in the state, it’s important to understand as much about tax collection and fighting for fair taxes as possible. High property tax bills in Texas come down to two main factors: high tax rates and high property values. Both are important elements in calculating property tax bills, so take a closer look at when and why they’re increasing, as well as what you can do about it.
High Tax Rates
All states need some form of tax revenue to manage state and local budgets, projects, and reserves. But Texas is one of the few states in the country that doesn’t have a state income tax. There’s also no corporate tax. While this is appealing for most workers, it means many of the expenses that would otherwise be covered by income taxes fall under property taxes instead.
However, it gets even more complicated: Texas doesn’t have a state property tax either. While the rules and enforcement mechanisms are established at the state level, they are managed at the local level. Individual tax jurisdictions set their own tax rates, manage their own websites and records, and have slightly different protocols. So if you live in Houston, you’ll have a different tax rate than El Paso or Denton. Tax rates can also go up or down based on your jurisdiction’s tax revenue needs.
High Property Values
The second half of the property tax equation is your property value. Two different numbers measure your home’s value:
- Your home’s appraisal value, which is based on market value and assessed by local appraisers
- Your home’s taxable value, which is derived from your appraisal value but also takes different exemptions and factors into consideration
Generally speaking, both of these values go up every year. County tax assessors use your appraisal value to calculate exactly what your taxable value will be. That’s why it’s important to use a tax relief mechanism like a homestead exemption, which modifies your taxable value. Because the taxable value is controlled by the appraisal value, it’s also important to protest your property taxes every year.
Related: Homestead Cap in Texas: Your Shield Against Property Tax Hikes
Property values have increased significantly in past years, leading to a similar increase in property taxes. This was seen across the state with Sherman-Denison homes increasing 29% in value and DFW-area homes increasing 26.7% in just three years. Even homeowners who didn’t sell their homes saw their market values increase, which made paying Texas’s high property taxes even harder.
Texas Passed Proposition 4 in 2023—What Is It?
Before Proposition 4, Texas’s government tried to address the rapidly escalating problem of expensive property taxes in 2022 by increasing the homestead exemption amount from $25,000 to $40,000. However, that wasn’t enough to keep property taxes affordable for homeowners in the state. So the House and Senate passed Proposition 4 in 2023 to create more significant savings opportunities.
The measures expand a lot of mechanisms for tax relief, but most don’t automatically generate savings for homeowners. Instead, property owners need to carefully assess what Proposition 4 does for them and what it doesn’t. Then you can decide which strategies will maximize your tax relief.
What Proposition 4 Does for Homeowners
While Proposition 4 had several line items that offer savings opportunities to Texans (such as removing franchise taxes from some businesses), there are four key changes that matter most:
It Increases the Homestead Exemption to $100,000
Homestead exemptions are a form of tax relief for qualifying homeowners. If you own a home in Texas and it’s your primary residence, you likely qualify for a homestead exemption. If you are also disabled or over 65, you may qualify for an additional exemption. These exemptions partially waive school district tax obligations and cap annual increases in your property’s taxable value at 10%.
Before Prop 4, the homestead exemption amount was $40,000. If you live in an area with a 1.25% school district tax, it would have saved you $500. Now, the exemption amount is $100,000. At that same school tax rate of 1.25%, you now save $1,250 annually—an increased savings of $750.
It Provides a 20% Cap on Taxable Property Values
Previously, only homesteads with an exemption had access to a form of tax relief called a “cap.” Suppose you own a home that has both an appraisal value and a taxable value of $250,000 this year. Under the terms of a homestead exemption and its 10% taxable value cap, next year’s taxable value cannot be more than $275,000—even if the appraisal value increases to $300,000.
However, in previous years, no other properties received the benefit of this cap. Whether they were rental properties, second homes, or commercial properties, all of them were taxed based on their appraisal value. Proposition 4 introduced a three-year pilot program with a 20% cap on those types of properties, provided their value is less than $5 million.
Now, if you have a rental property with a taxable value of $250,000, that value cannot rise to more than $300,000 in the next year. This is incredibly beneficial for property owners. Not only does it result in savings in years with a sudden spike in property values, but it also stabilizes anticipated expenses so everyone can forecast their property taxes with more confidence.
Three Members of Appraisal Committees Must Be Elected
The implications of this provision are unclear, but it can still have a significant impact on future property taxes. Currently, every appraisal district committee is governed by appointed officials. Under Proposition 4, three of the seats in most jurisdictions must be filled by elections. This gives local voters a bit more control over the processes of local appraisal districts, their operations, and how things like property tax protests will be managed.
It Allocates Funding for School Districts, Reducing the Burden for Property Owners
A significant element of Proposition 4 is that it provides automatic tax savings for property owners. It allocates $7.1 billion to school districts across the state. Because schools are receiving funding directly from the state’s excess revenue, school district tax rates should go down—or at least hold steady.
Related: Lowering Property Taxes For Texas Homeowners: Home Tax Shield 2023 Results
All in all, Proposition 4 sets aside $13.6 billion for school taxes: $6.5 billion from the anticipated reduction in tax collections due to the higher homestead exemption and the $7.1 direct allocation.
What Proposition 4 Doesn’t Do for Homeowners
With all the benefits, Proposition 4 doesn’t automatically promise affordable property taxes for homeowners in Texas. In fact, there are still sizable gaps that can lead to cost-prohibitive property tax bills. Consider the following:
It Doesn’t Increase Exemptions for Seniors or Homeowners With Disabilities
These were potential provisions that were under discussion, but they didn’t make it into the final bill. Homeowners over the age of 65 or with qualifying disabilities are currently able to file a supplemental exemption that waives another $10,000 of their property’s value from school district tax calculations. Increasing this threshold was discussed because these groups represent people who are often on fixed incomes and are particularly vulnerable to increases in housing costs. However, they were not included in the final proposition.
It Doesn’t Place a Cap on Market Value Increases
The homestead cap of 10% and the three-year pilot program with 20% caps for non-homestead properties only apply to taxable values. They don’t cap or constrain market valuations. If your local market sees a surge in demand and homes like yours suddenly start selling for $100,000 more, then your appraisal value is likely to go up by a similar amount.
This can be catastrophic if you don’t have a homestead exemption or if the pilot program is not renewed. The only current mechanism for controlling the appraisal value is to protest your property taxes every spring.
It Didn’t Establish a Long-Term Plan for School District Taxes
A one-time allocation of $7.1 billion to school districts takes the pressure off for now, but it’s likely only temporary. Soon enough, homeowners may see gradual increases in school district tax needs that cancel out all the savings of Proposition 4. However, the provisions don’t include a detailed long-term plan for alternative funding sources or other controls, so the state may need to introduce another big tax proposition down the line.
It Doesn’t Make It Any Easier to Protest Your Home’s Appraisal Value
Protesting your property taxes is an important form of tax relief. It’s the only mechanism homeowners have to make sure their appraisal value is reasonable and reflects fair market conditions if the county made a mistake or didn’t correctly evaluate their home. But the process can be very overwhelming for homeowners.
Currently, property tax protests include a lot of steps:
- To participate, you must file a notice that you intend to protest by the deadline (which is typically May 15th in most jurisdictions).
- You must determine a counter-valuation and provide evidence supporting why your figure is more valid than the county appraiser’s.
- The negotiation process could involve online communications, an informal meeting, and letters back and forth.
- Finally, you’ll need to present your evidence and arguments in front of an appraisal review board (ARB) where a trained county appraiser will also present arguments against you.
This process is stressful, time-intensive, and confusing. Proposition 4 did not simplify it. Even though it’s difficult, it’s an essential step in protecting your personal finances. When you keep your home’s appraisal value as low as possible, it helps prevent any sudden surges in your property tax bill.
Choose Professionals to Protest Your Property Taxes For You
While Proposition 4 enabled some important tax relief opportunities, there’s still more you can do to ease the burden. Protesting taxes is a proactive measure that helps keep your property taxes in check. The good news is you don’t have to go through the property tax protest alone. You can appoint a representative to handle everything on your behalf.
At Home Tax Shield, we work for homeowners by representing them throughout the entire protest process, submitting paperwork, presenting evidence to support a lower appraisal value, representing you in hearings, and making sure you file a protest notice every single year. Sign up with Home Tax Shield to ensure you get property tax relief from every angle.