Texas has the seventh highest property taxes in the US, coming in at approximately 1.8% for the average effective tax rate. As the state’s median home has a value of $172,500, the median property tax bill is slightly more than $3,000. Of course, within those approximations sits a wide range of experiences: Fort Bend County has the highest Texas tax rates at approximately 2.48%, which comes to nearly 5% of a resident’s annual income. No matter how you look at it, Texas property taxes have always been high, and they’ve become painfully elevated in the past few years. But why are property taxes in Texas so high, and is there anything you can do to get meaningful tax relief? Learn more about why Texas has always been home to high property taxes, what contemporary market factors have been driving them up even higher, and what you can do to ensure you only pay your fair share.
Why Are Property Taxes in Texas So High?: General Overview
Before we explore the high tax rates of the past couple of years (which were driven by COVID-19, extraordinary market situations, and unusual buyer behaviors), it’s essential to understand the general context in which Texas property taxes operate. Here are three key reasons why property taxes in the Lone Star State tend to place in the top ten highest state rates regularly:
There Is No State Income Tax
Texas is one of the few states that doesn’t have a state income tax on top of the federal income tax. The lack of state income tax offers a lot of savings and tax-time simplicity for Texas residents, but it also cuts down on how many services the Texas government can provide. Most states use their state income tax to pay for social services, maintenance, construction, and more. Without that funding, Texas instead gives a lot of those responsibilities over to local city and county governments, which in turn need a source of revenue. So local appraisal districts establish levies over key jurisdictions to provide funding for school districts, city services, county services, and junior colleges.
Texas Metroplexes Have Resilient Economies—So Cities Are Continually Expanding
Another reason Texas property taxes are so high is that, historically, the state has had a lot of expenses. Texas is the second most populated state in the country, and our population has grown by approximately 1% each year—or more. That’s a lot of infrastructure in the form of roads, city centers, school systems, and utilities. Also, not only do Texas cities and counties need to keep up with the demands of a growing population, but they also often want to encourage more growth by having appealing amenities for corporations and out-of-state transplants.
Regional centers like Dallas, Austin, and Houston have also been reasonably resilient in the face of national recessions, getting hit less hard and recovering more quickly. Recently Frisco and McKinney have made the list of the top cities in the US with resilient economies, and that promise of steady growth often acts like a self-fulfilling prophecy.
Texas Homes Are in Demand
As part of this continual growth trend, Texas has enduring housing demand. As younger native Texans graduate and leave home, they increase market demand. So do new residents coming from out of the state, divorced couples splitting up into separate households, and more. The general market demands are relatively constant and not tied to any particular economic events or political upheavals. Whenever there is a mismatch between demand and inventory, housing prices will fluctuate: when there is more demand than inventory, prices go up, and when there is more supply than demand, either the prices go down, or people take their homes off the market to try again later.
Market Appraisals vs. Tax Appraisals: A Quick Clarification
Since property tax amounts are so interwoven with house prices on the market, it’s essential to distinguish between the two types of appraisals involved. When someone is selling their house, the buyer’s lender requires an assessment; this determines the property’s market value so lenders can confirm the loan is a good financial fit. Sellers want this number to be high. But tax appraisal districts also appraise (or assess) homes to determine their taxable property value. Owners generally want these numbers to be low, so their property taxes are equivalently low. This property tax assessment does not affect your home’s market appraisal.
Related: House Prices and Property Taxes: How Are They Related?
Why Property Taxes in Texas Got So High in 2020 and 2021
All of those historical factors were turbocharged during 2020 and 2021. More and more people moved to Texas, particularly as remote work capabilities expanded and people started to move away from population centers like Los Angeles and New York City. There was a massive glut of demand for houses and a statewide inability to meet that demand, meaning the homes sold on the market saw sky-high purchase prices. This rise was exacerbated by a fifty-year-high spike in construction costs, a slowdown in residential construction during the height of the pandemic, and risk-averse people holding onto their homes if they weren’t sure they’d be able to buy a new residence.
The rapid rise of house prices very quickly entered overall property appraisals for market-based appraisals handled by lenders and assessors employed by local tax appraisal districts. Because houses were closing at much higher amounts, valuations also rose. Even without an increase in tax rate percentages, a higher property value results in a higher total tax bill.
3 Things Keep Property Taxes in Check in 2023
Individual residents can’t change the general trends and environment that make property taxes so high in Texas. Because there are no state income taxes, increased property taxes often indicate growth and healthy local government activity. Similarly, individual residents can’t exert much influence over current market trends that continue to fall into place in the wake of the COVID-19 pandemic and the housing market turbulence of the past few years. However, a few restrictions and tax relief options are in place to curb excess property tax bills. Here’s what can help keep your property taxes more affordable in the year ahead.
Cities and Counties Can’t Significantly Increase Budgets Without Voter Approval
In 2019, Texas residents voted in a measure that prevents individual taxing authorities (i.e., cities and counties) from increasing taxes beyond 3.5% without holding a vote and passing the budget increases. This barrier prevents runaway tax rate inflation while allowing governments to consider helpful, widespread budget increases. This check in the system prevents your tax rates (one portion of the total tax equation) from climbing too quickly.
Homestead Exemptions
Simultaneously, individual property owners can qualify for property tax exemptions that declare part of their property’s value as taxable. A general resident homestead exemption removes $40,000 of your home’s value from the calculation of school district property taxes. Since that individual levy hovers at around 1% in many areas, that’s an automatic ~$400 savings for homesteads. Homeowners who qualify for an over-65 exemption or disabilities exemption get another $10,000 removed from their school district tax calculation. Disabled veterans with a 100% disability rating from the VA can even have the entirety of their home’s property tax bill waived.
How do you receive these tax benefits? Check with your local tax appraisal district’s office to see which exemptions are currently active for your property. Some counties automatically apply for some exemptions, while others will require you to file a form and provide documentation. However, once you successfully file for an exemption, you generally do not have to reapply year after year; it automatically stays in place.
Related: Texas Property Tax Exemptions that Benefit Residential Homebuyers
The Ability to Protest Property Taxes
Every homeowner in Texas has the right to file an official notice of protest against their property valuation. In spring, you’ll receive a Notice of Appraised Value if your current year’s assessed value meets certain criteria, such as an increase over $1,000 or a change in ownership. If you think the amount is too high and the appraisal is inaccurate, you can begin the protest process by filing a Notice of Protest before May 15 of the current tax year. From there, you may receive a modified Notice of Appraised Value with a lowered amount or an invitation to meet with a tax assessor or attend a formal hearing. This ensures that your case is presented in front of a neutral panel that will reach a fair resolution.
Why Are Property Taxes in Texas So High, and What Can You Do About It?
Texas property taxes are high, and they can even feel exorbitantly high. But protesting your property taxes can feel like an overwhelmingly bureaucratic process, especially when you’re already busy. That’s where Home Tax Shield can help. We support homeowners by conducting an assessment of your property’s value and helping you manage the property tax protest, so you don’t have to navigate it alone. Sign up today to get started and see how our team can help you fight for fair property taxes in 2023 by conducting an assessment and filing a protest on your behalf.