Texas property tax law changes every few years. See the latest posts for the most up-to-date information.
Property taxes are taxes levied on both residential and commercial properties. These taxes help local governments provide better schools, parks, libraries, roads, and community facilities in various localities. Some states like Texas also use property taxes to finance multiple cities’ police and fire departments.
Last year (2021), Texans paid an estimated $73.2 billion in property taxes. As mentioned earlier, these taxes will provide better schools, police departments, and roads within the various counties and districts in Texas. The latest Biennial Property Tax Report shows that property taxes are Texas’ most significant revenue source.
While Texas does not collect income tax, property taxes in this state are some of the highest in the country. It’s estimated that Texas has the 7th highest property tax in the US. As a Texas property owner, you are looking for ways to reduce your property taxes, seeing that they can quickly add up as property values increase.
Capitalizing on tax exemptions is one of the significant ways to reduce your property taxes. In today’s article, we help you understand:
- What is a property tax exemption
- Common tax exemptions
- Eligibility for exemptions
- And how you can apply for property tax exemptions
But before we get into that, let’s understand why property taxes continue to increase.
Property Taxes Have Been on an Upward Spiral
In the past few years, property taxes have increased across states and, in turn, laid a heavy burden on property owners. We can attribute this rise to an increase in home value. For instance, residential home value in Harris County, Texas, increased between 15% and 30%. Commercial property, on the other hand, increased by 18%. Roland Altinger, the Chief appraiser in Harris County appraisal district, cited that he has never witnessed such increases in the real estate market in the last 40 years.
Another report by the Federal Housing Agency showed that home prices nationwide increased by 17.4% in 2021 compared to 2020. When the home value increases, property taxes also increase because the final tax bill depends on a home’s appraised value.
The growing population, supply chain issues in the construction industry, and the ability to work remotely have all contributed to the rising home value. However, you can not control all these external factors. When trying to lower your property taxes, the most significant opportunity is to take advantage of a property tax exemption.
What is a Property Tax Exemption?
A property tax exemption excludes a portion of your property’s value from being taxed. Tax exemptions can come as full or partial exemptions. When it’s a partial exemption, a certain percentage of your property’s appraised value is shielded from taxation (not taxed). The entire appraised property value is not taxed when it’s a total exemption. In this case, you’ll not pay a single dollar in property taxes.
For instance, religious organizations are exempt from all property taxes. They have total property tax exemptions meaning they don’t have to pay a single coin on property taxes.
Tax exemptions are in place to help property owners reduce their tax bills. These exemptions can also incentivize more people to invest in that state’s real estate.
According to Texas tax codes, some local taxing units must offer mandatory exemptions to specific groups of people or properties. However, these exemptions are not automatic; you’ll have to apply and get approval before they can be applied to your tax bill.
A property tax exemption can save you thousands of dollars in your tax bill. For example, if you are eligible for a 20% exemption:
Let’s say your home’s appraised value is $490,000. When we apply the exemption amount, the taxable home value will be:
$490,000 x 20%= $98,000
$490,000—$98,000= 392,000
Taxable home value = $392,000
Now let’s say the current tax rate in your county is 1.02%. This translates to a tax bill of;
$392,000 X 1.02%
Tax bill= $3,998.4
Without the exemption, your tax bill would have been $4,998. With the exemption, you saved $1000 in property taxes.
Unfortunately, not everyone is eligible for a property tax exemption. This article focuses on tax exemptions available to Texas property owners.
Related: What You Need to Know About Exemptions for Texas Homes
Common Property Tax Exemptions
Tex. Tax Code § 11.13 clearly defines tax exemptions. Below is a breakdown of popular tax exemptions available in Texas.
Homestead Exemption
The homestead exemption only applies when a property is used as the primary residence. This property tax exemption is available in most states, including Texas. Primarily, the homestead exemptions exclude a percentage of your home’s appraised value from being taxed.
Texas applies a $40,000 homestead exemption to residential properties.
All school districts are required by Tax Code Section 11.13(b) to provide the homestead exemption to Texas residents. Cities, counties, and special districts can exempt up to 20% of the property’s appraised value. This 20% exemption can not be less than $5000.
In addition, counties that collect flood control or farm-to-market taxes are mandated to provide a $3000 homestead exemption.
The homestead exemption does not apply to vacation houses or investment properties.
How to Qualify for the Homestead Exemption
- The property in question must be your primary residence
Homeowners serving in the military or those receiving services in health, infirmity, or aging institutions can be away from home for more than two years and still receive the homestead exemption.
- You must declare on your exemption application that you don’t receive any other homestead exemption inside or outside Texas.
Seniors and Disabled Residence Exemption
According to Tax Code Section 11.13(c), all school districts must provide $10,000 in residence homestead exemption to property owners with a disability and those 65 years and over.
This $10,000 is applied on top of the standard $40,000 homestead exemption. For example, if you’re a property owner in a school district and are 67 years old, you will receive a $40,000 plus $10,000 exemption. Your total property tax exemption will be $50,000.
Other local taxing units are allowed to adopt a homestead exemption for seniors or disabled residents. However, the exemption can not be less than $3,000. If an individual is disabled and 65 years or over, they can receive both exemptions in the same year. However, the exemptions can not be offered by the same taxing unit.
If a person receiving this exemption dies, the surviving spouse can continue to receive the exemption. The prerequisite is for the surviving spouse to be 55 years or older. The residence should also be their primary home. Even then, the surviving spouse must reapply for the exemption to prove eligibility.
For a person with a disability to be eligible, they MUST meet the definition set by the Federal Old-Age, Survivors and Disability Insurance Act.
Veteran Exemption
Disabled veterans are eligible for partial exemptions on property they own, whether commercial or residential. The percentage exemption depends on various factors, including the disability rating of the veteran.
Under Tax Code Section 11.22, surviving spouses and children of the veterans in this category may continue to receive partial exemptions. If the veteran has a 100% disability rating, they are eligible for a total tax exemption on their residential homestead.
In addition, any residence homestead donated to a disabled veteran by a charitable organization is also eligible for partial exemption. Likewise, the exemption can extend to the spouse if they have not yet remarried.
If a member of the US armed services was killed in the line of duty, their surviving spouse is eligible for total property exemption. This total exemption only applies to the residential homestead, and the spouse must not have remarried since the death of the armed service member.
First Responders Exemption
If a first responder was killed in action, their spouses are entitled to a total property exemption on their residential homestead. Like the above exemptions, the spouse must not have remarried since the first responder’s death.
Temporary Exemption
The authorities can also exempt property if it has 15% disaster damage in a governor-declared disaster area. The property will be eligible for a temporary exemption no later than 105 days after the governor declares the area a disaster area.
For the property to be eligible, you must use it for income production. Some manufactured homes are also eligible.
Charitable Organizations and Businesses
Qualified properties owned by charitable organizations are also eligible for property tax exemptions. The charitable organization must conduct one of the activities listed in Section 11.18. In addition, for the charitable organization to qualify, the organization should not allow an individual to reap private gains from the property.
Religious Organizations
Religious organizations are also eligible for total property tax exemptions. The exemption applies to the actual place of worship and clergy residences.
How to Apply for Property Tax Exemptions
In most cases, you must apply to receive a property tax exemption. The exemption application is made to the appraisal district your property belongs to. Some exemptions require annual applications, while others warrant a one-time application.
Here’s a list of exemptions requiring only one application:
- Residential homestead exemption
- Disabled veteran exemption
- First responder exemption
- Donated veteran residence
- Disabled persons exempt
- Religious organizations exempt
Others, like charitable organization exemptions, require annual applications.
Although the exemptions listed above warrant a one-time application, the district appraiser might ask you to make an application again, but this is rare.
The appraisal district chief appraiser determines whether your property qualifies for the exemption or not. Local taxing units can also appeal to the appraisal district to grant an exemption to a property owner under certain circumstances.
If you’ve recently purchased a home, a new law in Texas gives you the entire first year of residence to file for your homestead exemption. Typically, though, you need to file for an exemption before May 1st.
Failing to file your exemption application in time is one of the reasons why the chief appraiser might reject the exemption. When filing for most exemptions, you’ll have to provide evidence of age, physical condition, military service status, family relationship, and disability.
The Texas Comptroller lists all exemptions application forms you might need.
If you’re a disabled veteran or a surviving spouse of a member of the armed services, fill in form 50-135 for your exemption application. For residential homestead exemption, fill in form 50-114. On the other hand, charitable organizations must fill in form 50-115, and religious organizations form 50-117. You can also find most of these application forms on your appraisal district’s website.
You should submit these forms to the county appraisal district offices for evaluation and exemption determination. The county appraisal district offices will then notify you whether you have been awarded the exemption or not.
Your Exemption Applications May Be Rejected If
- Documents filed do not support the exemption.
- You filed for an exemption after the deadline(April 30th).
- In cases of residential property, another exemption has already been applied.
- Documents filed with an exemption do not match the property address.
The Chance for an Appeal
If the chief appraiser rejects your exemption, you can appeal their determination. The appeal or protest will take place before the Appraisal Review Board. Generally, you are entitled to a written notification if your property tax exemption is denied so you can start preparing for an appeal before paying property taxes.
Related: Texas Property Tax Protest Process: What You Need to Know
It’s safe to say that you are better equipped to answer “what is a property tax exemption.” More importantly, you now have the means to save more on property taxes by applying for a property tax exemption.
That said, a property tax exemption is only one of the ways you can reduce your property tax bill. The other effective route is to protest your property’s appraised value. By protesting, you are guaranteed a fair property appraisal and a fair tax bill. In addition, you’ll also enjoy lower taxes in subsequent years if your property is fairly appraised.
Save More on Property Taxes with a Property Tax Expert
Although protesting taxes can lower your tax bill, it is cumbersome and takes significant time to materialize. Working with an experienced property tax expert can help relieve you of the burden of protesting property taxes. Home Tax Shield helps property owners like you save on property taxes by ensuring your property tax bill is fair and as low as possible.
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