Texas property tax law changes every few years. See the latest posts for the most up-to-date information.
The housing market in Texas has recently faced skyrocketing demand. Homeowners need to stay on their toes to reduce their property tax bills and ensure they’re taking all possible steps to keep their property taxes in control. Prospective homebuyers must also be knowledgeable about property taxes as they explore the market. To optimally serve their clients, real estate agents should also have a strong understanding of property tax trends, how to advise their clients about property tax concerns, and top tips for their clients during the first year of owning their new home. This guide presents some of the critical things both real estate agents and their clients should know about property taxes as they’re looking at potential homes during the closing process and after the deal is done.
4 Things to Know As You’re Shopping for a New House (Or Helping Your Client Buy a New House)
Whether you’re shopping for your first home or you’ve purchased a house before, examining the tax records of your new dream home is probably the last thing on your mind. After all, in today’s whirlwind real estate market, it’s hard enough to put in a competitive offer, get a timely inspection, and simply keep everything together until closing day. But before you submit that offer, it’s helpful to keep property taxes on the periphery of your decision-making process. Consider these key elements of property taxes.
Different Tax Districts Have Different Tax Rates
Texas doesn’t have a state income tax, and counties have the freedom to establish and manage their tax rates and budget. The state government may mandate some general processes and caps on property tax increases. For example, counties can’t increase property tax revenue beyond three and a half percent without a local vote in most instances. Still, the rates, budget, and operations are up to the individual counties. For example, the most expensive tax county in Texas is Fort Bend at 2.23%, while Dallas County is 1.99%. If you’re moving from one side of the state to another, or even just across city or county lines, you may see a massive change in your annual property tax bill, even if the value of your home stays precisely the same.
Your New Property Taxes May Not Reflect the Current Taxes (But You Can Find the Current Records)
Savvy home shoppers might check the property’s tax records on the county appraisal district website. Individual home profiles will also show the market or appraised property value, if not the total property tax bill. But if you check the fine print, you’ll also see if the owner has a general resident homestead exemption, an exemption for being disabled or over 65 years old, or other exceptions that can lower the property taxes they pay.
Those circumstances don’t ensure that you’ll pay even close to the same bill. For example, if you’re buying the property as a real estate investment, you won’t be able to file a general resident exemption. Similarly, if you’re not over age 65 or disabled, you won’t qualify for those exemptions.
Other changes can also ramp up your likely tax bill. The price you pay for the home may be included in the county’s calculations. The previous owner may not have reported all of the improvements or updates they made to the property. Continued changes in the market, such as increasing demand, will also increase property taxes. Using past payment records to determine future costs can set you up for an unexpectedly high bill in January.
You Should Apply for Exemptions ASAP
In the past, Texas homeowners had to wait a year after purchasing their new home to file for homestead exemptions. But since January 1, 2022, this is no longer the case. While you might spend your first day at your new home changing the locks and unpacking your essentials, spend your second day filing for any property tax exemptions you may qualify for. Most counties allow you to manage this process entirely online through their county tax appraisal district website.
As long as a homestead exemption hasn’t yet been filed for the year, homeowners using their new primary residence should file for that exemption as soon as possible to ensure they receive a $40,000 exemption for the school district portion of their taxes. A homestead exemption has additional benefits, such as county-specific exemptions and a cap for your property’s assessed value that prevents your county from raising the assessed value by more than 10% in a given year (except for improvements and upgrades). Bear in mind, this opportunity only arises in year two.
If You’re a Senior, a Surviving Spouse of a Senior, or a Surviving Spouse of a Disabled Veteran, Your Property Tax Exemptions Can Come With You When You Move
Texas offers many potential property tax exemptions for homeowners, including:
- Exemptions for homeowners aged 65 and older
- Exemptions for people with disabilities
- Exemptions for disabled veterans
People who directly qualify for these exemptions can often transfer them to new homes with little or no fuss. However, because partial exemptions often affect school district taxes and those levies vary from county to county, you’ll need proper documentation to ensure the maximum possible exemption travels with you. Many experienced homeowners may already have some experience with this process.
It is less well-known that surviving spouses of qualifying individuals can often retain those benefits, even if they move to a new property. Before you sell your home, petition your county appraisal office for complete documentation and the dollar value or percentage rates of all applicable exemptions so you can file them as supporting evidence with your new county district. A real estate agent can often help with this process by reaching out to title offices or a property tax official.
Related: What Is a Homestead Exemption in Texas?
2 Things Texas Real Estate Agents Need to Know About Property Taxes
Real estate agents are not tax officials and are not obligated to help their clients manage their taxes. However, navigating the particulars of property taxes and some of the most common questions your clients are likely to have can go a long way to ensuring a potential home is the right fit for a client’s house-buying and general annual budget. Some property tax insights are also crucial, depending on your niche. Real estate agents must:
Be Able to Explain the Differences Between an Assessment (for Tax Purposes) and an Appraisal
Because appraisal and assessment are used interchangeably in many different contexts, clients can quickly get confused. A property value assessment for tax purposes calculates the property’s estimated value. Other counties may use different formulas, but the assessed value determines your tax rate.
Similarly, an appraisal does not dictate property taxes. An appraiser calculates the home’s value to ensure that the bank or lending institution won’t be underwater; the value of the home loan cannot be greater than the appraised value in the vast majority of lending arrangements.
The Prior Owner’s Tax Exemptions Could Cause Problems During Closing
Complex property tax exemptions and deferments can spell trouble for simple closing arrangements. Tax liens can be attached to properties following January 1st if property taxes aren’t paid properly. These liens have a “super priority” status and can quickly cause problems for a transfer of ownership. Generally, exemptions don’t cause liens or title complications, but three common scenarios are:
Over-65 Exemption Prorations and Deferments
Homeowners over the age of 65 can choose to defer their property taxes. Those payments and applicable interest are still due; for example, the total accrued amount is due within 181 days of a senior homeowner’s death. Exemptions can transfer from one property to the next, but they cause prorations. The new owner will owe property taxes for the portion of the year they owned the property. This is unlikely to saddle your client with an unfair tax burden, but figuring out the paperwork can cause delays in a fast closing.
Sudden Jumps in Property Value
Because property values are likely to jump because of a sale or home improvements made to put the house on the market, your buyers may balk at the sudden increase. The sudden increases in expected property taxes may make buyers back out of the deal. Preparing buyers for more realistic property tax payments and warning them away from making overly conservative estimates based on past years can help hold the sale together.
Related: Property Tax Assessment vs. Market Value: What Are the Differences?
Top 3 Property Tax To-Dos for Homeowners During the First Year of Ownership
If you’ve reached your closing day and now own a new home, congratulations! As you settle into your home, make sure you handle these three tax-related to-dos while everything is still fresh on your mind:
Apply for Property Tax Exemptions
Again, Texas recently changed its provisions, so homeowners don’t have to wait a year to apply for their resident homestead exemption and receive a $40,000 exemption. However, keep in mind you can only apply once per year. If you already filed for a homestead exemption in your previous home this year, you can’t do the same for your new home.
Monitor Your Escrow Account and Put Aside Extra Savings
Most lenders require or offer incentives for homeowners to have an escrow account. Your monthly payments include your home loan principal and interest, home insurance premiums, and an estimated portion of your annual property taxes. Lenders use a lot of calculations to ensure your estimated front-loaded payments are as accurate as possible, and they may even have you save a little extra so you aren’t left with a hefty bill at the end of the year. However, if you can, it’s often wise to have a little extra in savings just in case those calculations were wrong.
Protest Your Property Taxes
When you receive your tax bill in November, you may think the property’s assessed value is too high. If that’s the case, follow your county’s processes to file a protest form. While you can choose to file early, it’s more common to file in April after receiving the notices of the appraised property value.
You can provide evidence about why you think the county’s assessment is wrong and make a countering assessment of what you believe the property is worth. The county may accept your counteroffer, schedule a meeting, or even schedule a hearing so you and the county tax assessor can present your cases in front of a panel. No matter the outcome, protesting your property taxes is an excellent financial habit for reducing the risk of overpayment.
Make Your New Home’s Property Taxes Easier With Help From Home Tax Shield
Buying a new home is stressful and time-consuming. Having to stress about new tax-related costs and property tax bills can sour your first moments in your new house. Home Tax Shield is here to help manage the process of protesting your property taxes on your behalf. Sign up today to take property tax protests off your plate and focus on enjoying your new home.