What Is A Property Tax Exemption?
Exemptions allow owners of real estate in Texas to save money on property taxes. Exemptions work in two separate ways. They can (A) exempt a portion of the value from taxation and (B) cap how property taxes can increase year over year.
Here’s an example where the $100,000 homestead exemption is applied in the calculation:
The exemption cap on value increases can be confusing. In Texas, the homestead exemption cap is a 10% increase and is applied to your county assessed value. So technically, the county can raise your market or appraised value as high as you let them, but they can only raise your assessed value by the certain percentage increase the exemption you have allows. Most of the time your assessed value is the same as your market/appraised value. When the real estate market is hot the market/ appraised value can exceed your assessed value.
How Do I Apply For An Exemption?
Applying for exemptions can be easy and many counties allow you to do it online. Because it requires very personal information about you, we recommend homeowners file their own exemptions.
What Types Of Exemptions Are Available?
Homestead Exemption
The most common exemption is the homestead exemption and it can only applies to your principal residence where you reside.
- All residence homestead owners are allowed a $100,000 residence homestead exemption from their home’s value for school taxes.
- If a county collects a special tax for farm-to-market roads or flood control, a residence homestead is allowed to receive a $3,000 exemption for this tax.
- Any taxing unit, including a city, county, school, or special district, may offer an exemption of up to 20 percent of a home’s value. But, no matter what the percentage is, the amount of an optional exemption cannot be less than $5,000.
- You can qualify for the inherited residence homestead if you are an heir property owner if you inherited your primary residence by will, transfer on death deed, or intestacy, regardless of whether your ownership is recorded in the county’s records. Heir property owners can access 100% of the homestead exemption and related tax protections on their homestead, even when there are co-owners of the property.
Here’s how the two parts of the homestead exemption work:
Over 65 Exemption
An over 65 exemption is available to property owners the year they become 65 years old. If a homeowner has this exemption and passes away, their spouse (if they are 55 years or older) can continue the exemption. This exemption can transfer if you move to a different home in Texas.
The over 65 exemptions benefits are as follows:
- Individuals age 65 or older or disabled resident owners qualify for a $10,000 residence exemption for school taxes, in addition to the $100,000 exemption for all homeowners. If the owner qualifies for both the $10,000 exemption for age 65 or older homeowners and the $10,000 exemption for disabled homeowners, the owner must choose one or the other for school taxes. The owner cannot receive both the over 65 and the disability exemption.
- Any taxing unit may offer an additional exemption amount of at least $3,000 for taxpayers age 65 or older and/or disabled.
- This exemption also limits (“caps”) the amount of school taxes you will pay every year to the amount you paid the first or second year you qualified (whichever is lower). This tax ceiling, or tax freeze will apply as long as there are no improvements made to your home.
Here’s how the two parts of the over 65 exemption work:
Disabled Person Exemption
Any homeowner who meets the Social Security Administration’s standards for a disability is eligible. To receive this exemption a person has to have a medically determinable physical or mental impairment that prevents them from engaging in any substantial gainful activity and the impairment is expected to last for at least 12 months or result in death. A person who receives disability benefits under the Federal Old Age, Survivors, and Disability Insurance Program could qualify. If a homeowner has this exemption and passes away their spouse (if they are 55 years or older) can continue the exemption.
The disability exemption benefits are as follows:
- Disabled residence owners qualify for a $10,000 exemption for school taxes, in addition to the $100,000 exemption for all homeowners. If the owner qualifies for both the over 65 and disability exemption, the owner must choose one or the other for school taxes. The owner cannot receive both exemptions.
- Any taxing unit may offer an additional exemption amount of at least $3,000 for taxpayers age 65 or older and/or disabled.
- This exemption limits the amount of school taxes you will pay every year to the amount you paid the first or second year you qualified (whichever is lower). This tax ceiling, or tax freeze will apply to your home unless you add improvements.
Disabled Veterans
Veterans with a 10% or more disability rating qualify for this exemption. It can apply to any property and is transferable to a surviving spouse. You must be a Texas resident, receive disability compensation from the US Department of Veterans Affairs for a service-connected disability, and have a disability rating of 10% or be classified as an unemployable individual from the US Department of Veterans Affairs. In Texas, a veteran with 100% disability rating pays zero property taxes!
Inherited Residence Exemptions
You can qualify for the inherited residence exemption if you are an heir property owner if you inherited your primary residence by will, transfer on death deed, or intestacy, regardless of whether your ownership is recorded in the county’s records. Heir property owners can access 100% of the exemption and related tax protections, even when there are co-owners of the property.
Surviving Spouse Of First Responders Killed In The Line Of Duty Exemptions
This exemption entitles a surviving spouse of certain first responders killed or fatally injured in the line of duty to a total property tax exemption on his or her residence if the surviving spouse has not remarried since the death of the first responder. This exemption applies regardless of the date of the first responder’s death.
Agricultural and Timber Exemptions
The agricultural exemption, if approved, applies a unique valuation methodology to parcels of land. This means that agricultural landowners may have their property taxes calculated based on the productive agricultural value of the land, as opposed to the land’s market value. Generally speaking, your land needs to be 10+ acres that have been used for agricultural purposes for 5 of the last 7 years. This includes livestock, crop, beekeeping, and other approved agricultural activities.
Solar and Wind-powered Energy Device Exemptions
This exemption removes from property tax the amount of appraised value associated with the installation or construction of a solar or wind-powered energy device that is primarily for the production and distribution of energy for on-site use, regardless of whether the person owns the real property on which the device is installed or constructed. Additionally, counties are required to use the cost method of appraisal to determine the market value of solar energy property that is used for commercial purposes.
Temporary Disaster Exemptions
A qualified property that is at least 15 percent damaged by a disaster in a governor-declared disaster area is eligible for a temporary exemption of a portion of the appraised value of the property. A property owner must apply for the temporary exemption no later than 105 days after the governor declares a disaster area. The property must have sustained physical damage caused by the disaster and includes:
- tangible personal property used for income production;
- improvements to real property
- certain manufactured homes
Charitable Organizations And Businesses Exemptions
Texas law allows for several exemptions for charitable organizations and businesses. An organization must meet requirements regarding how it is organized, what it does, and how it uses its property. Real and personal property owned by organizations engaged primarily in performing charitable functions is exempt. An organization is required to obtain a new Comptroller’s Office determination letter every fifth year after the exemption is granted. To implement the determination process, the Comptroller’s office has adopted rules and prescribed a form for applying for a determination letter Most of these exemptions have specific application forms that can be found on the Texas Comptroller website.
How Property Tax Protests And Exemptions Work Together To Lower Your Taxes.
By law, protesting focuses on the appraised (or market) value, NOT the assessed value which is created after exemptions are applied. That’s how the Texas property tax system is set up. In most years, appraised value = assessed value, and lowering appraised value in a protest lowers your assessed value which saves you money. When the appraised value is higher than the assessed value, that means exemption caps are already lowering your assessed value. Sometimes that difference between appraised and assessed means it can be tough (or impossible) to lower your taxes by protesting. Either way, it is still smart to protest to keep the county’s market values in check. Plus, it forces the county to start with a lower value next year when they want to raise your market value again. Oh, and it helps your neighbors who may not have exemptions so be sure and protest every year no matter what!
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Losing And Monitoring Your Exemptions
Exemptions can be lost for several different reasons. Some of the most common reasons include:
- Moving your principal residence
- Title changes
- The property is no longer used for agricultural purposes
It’s important to monitor your exemptions as the county does make mistakes when dropping exemptions. State law allows counties to retroactively fix mistakes for up to 2 years prior so you must monitor these tax-saving exemptions every year to be sure you are saving the most on your property taxes.