Unlocking the Benefits: Homestead Cap Value in Property Tax Protests

In November 2023, Texas voters approved an amendment that allowed the legislature to increase the homestead exemption to $100,000 and create a pilot program to cap the assessed value of non-homesteaded properties. While these changes promise substantial savings to homeowners across the state, it’s important to step back and see how the changes work within the existing framework of property tax relief measures.

Two important components of keeping your property taxes in check didn’t receive much fanfare in the news: homestead value increase caps and protesting your property taxes. When a combination of measures work together—filing your exemptions, protesting the new appraisal value every year, and confirming that your assessed values don’t exceed allowed increases—you can fight for the lowest possible property tax bill and keep your appraised value at a reasonable level. 

What Is the Homestead Cap?

Qualifying homeowners can file for a form of tax relief called a homestead exemption. There are numerous savings opportunities and benefits that this exemption can provide, but two have the greatest impact on your property taxes:

1. The first $100,000 of your home’s appraised value is exempted from school district taxes. Many counties across the state have a school district tax rate of approximately 1%, so this exemption can save you $1,000 every year.
2. The homestead cap means your assessed property value can only increase by a maximum of 10% every year. Even if the market value of properties in your neighborhood surges by 15% or 20%, tax assessors can only raise the amount by 10% when calculating your taxes.

Related: Beyond the Homestead Exemption: Lesser-Known Tax Exemptions in Texas

Both of these elements keep your property taxes in check. The first provides a direct discount, and the second stabilizes property taxes so you won’t face a tax bill that’s turbulent and suddenly higher year after year.

How the Homestead Cap Works

The homestead cap is complex, so it’s important to understand precisely how it works within the context of calculating property taxes. The process involves three main stages with two different values: your appraisal value and assessed value.

1. Your appraisal district calculates the appraisal value, or likely market value, of your home. They pass this number on to the local tax assessor’s office.
2. The tax assessor then determines your home’s assessed value, which is the appraisal value minus any excess increases that the cap won’t allow. If your appraisal value grows 20% in a given year, your home’s assessed value will only increase by 10%. If your appraisal value grows by 8%, your home’s assessed value will likewise grow by 8%.
3. Tax assessors use the assessed value and property tax rates in your area to calculate your final property tax bill.

There’s a New Property Value Cap for Non-Homestead Properties

In past years, only homesteaded properties had a value cap to stabilize potential increases. However, the recent legislation includes a three-year pilot program that extends the benefit to other properties. Business properties, second homes, and investment homes valued at less than $5 million receive the benefit of a 20% value cap. You don’t need to file an exemption to receive this benefit.

Property Tax Protests Affect Appraised Value; Homestead Caps Affect Assessed Value

Both property tax protests and homestead caps are valuable tools for controlling your property taxes, but the two mechanisms don’t directly interact. Instead, they’re independent checks on the system to make sure you aren’t facing an unfair property tax bill at the end of the year. 

When you protest your property taxes, you’re really protesting the appraised value, that number at the very start of the process. Lowering that number starts all the other calculations at the right baseline. Consider the graphic example and two scenarios for how the mechanisms interact.

The Optimal Outcome: Your Property Tax Protest Reduces the Appraisal Increase to Less Than 10%

Suppose you have a homesteaded property that was valued at $300,000 last year and $350,000 in the current year—that’s a 16.67% increase. If you don’t protest at all, the homestead cap will ensure your assessed value only goes up by 10% instead of 16.67%. But this still leaves a very high appraisal value on your property record. If you ever lose the exemption status, that high number comes into effect.

But if you protest your appraised value and lower it to $325,000 instead, that’s an 8.33% increase. Not only does that lower the recorded appraised value, but it also decreases your assessed value. This results in upfront savings this year and a lower baseline for calculating increases in the next year.

A Strong Outcome: Your Property Tax Protest Lowers Your Appraisal Value (Even If It Doesn’t Impact Your Tax Bill)

Suppose you’re in the same scenario: you have a house with an appraised value increase of 16.67%. Instead of lowering it from $350,000 to $325,000, you can only lower it to $340,000—a 13.33% increase. The tax assessors will still only raise your assessed value by 10% (or to $330,000).

Related: Lowering Property Taxes For Texas Homeowners: Home Tax Shield 2023 Results

So, you might ask yourself, what was even the point? It didn’t save you any money. But here’s why it’s still a vital step to take:

• You keep the appraised value low, even if it’s not low enough to reduce your taxes this year. Keeping your appraised value low protects you in the event your home ever loses its homestead status. This can happen if you move and decide to rent out your home, as it’s no longer your primary residence, or if you give your home to a descendant. If you sell your home, it immediately sets the appraised value as the new baseline for calculating property taxes for the new owner.
• You can’t predict how much savings you’ll get year after year. In some years, you may only be able to reduce the appraised value, not the assessed value. In other years, you may be able to do both. As the market starts to stabilize, it’s much more likely that property tax protests will have a direct effect on your property tax bill.

How to Harness the Benefits of Homestead Caps and Property Tax Protests

There are a lot of mechanisms and calculations operating behind the scenes to figure out the property tax bill you receive every year. From a homeowner’s perspective, there are only two crucial steps you need to take:

1. File Your Homestead Exemption: You should only have to do this once unless your title changes. If you have a homestead exemption in place, it should automatically be weighed into your property tax calculations every year.
2. Protest Your Property Taxes Every Year: You can—and should—protest your appraisal value every year. This prevents your appraisal value from creeping out of control, especially in turbulent markets. It can also reduce your home’s taxable value and help you pay less in taxes.

Fight for a Lower Property Tax Bill With Assistance

Protesting your property taxes is a good financial habit for every Texas homeowner, but you don’t have to navigate the process alone. Tax professionals at Home Tax Shield can manage the process on your behalf every year, from filing a protest notice with the county to presenting evidence and arguing your case in front of an appraisal review board. Sign up today to make sure you get the lowest possible appraisal value and property tax bill every year.