Understanding Property Taxes in Texas: What Homeowners Need to Know

When purchasing a home in Texas, one of the essential considerations is understanding property taxes. Property taxes are a significant part of homeownership costs, and they can vary greatly depending on the location, value of the home, and the tax rates set by local governments. If you're planning to buy a home or already own property in Texas, here's what you need to know about how property taxes work in the Lone Star State.

How Property Taxes Are Calculated

Property taxes in Texas are based on the assessed value of your home and the tax rates set by local taxing authorities, which include county, city, school districts, and other special districts (like community colleges and hospital districts). The general formula is:

Property Tax = Assessed Property Value x Total Tax Rate

1. Assessed Value of Your Property
Each year, your local county appraisal district determines the market value of your property. This value reflects what the property would likely sell for on the open market. In Texas, homes are typically reassessed annually, meaning your property’s value can change each year, especially in areas with rapid appreciation like Austin.

2. Local Tax Rates
Texas does not have a state-level property tax. Instead, local governments set tax rates to fund public services like schools, roads, and emergency services. The rates are often expressed as a percentage of the property's assessed value. For example, if the tax rate is 2.5% and your home is assessed at $300,000, your annual property tax bill would be $7,500.

Property Tax Exemptions

To ease the burden of property taxes, Texas offers several exemptions that reduce the taxable value of your home. The most common ones are:

1. Homestead Exemption
Texas homeowners can qualify for a homestead exemption, which reduces a portion of the home’s assessed value from taxation. For a general homestead exemption, homeowners can deduct $40,000 from their primary residence's assessed value. For example, if your home is valued at $300,000, applying the homestead exemption reduces the taxable value to $260,000.

2. Over-65 and Disabled Persons Exemptions
Homeowners over the age of 65 or those who are disabled may be eligible for additional exemptions that further reduce their tax burden. In some cases, property taxes may even be frozen at a certain amount once you qualify.

3. Veterans Exemptions
Texas also provides property tax exemptions to disabled veterans and their surviving spouses. The amount of the exemption varies depending on the disability rating but can significantly reduce or even eliminate the property tax owed.

Property Tax Appeals

If you believe your property’s assessed value is too high, Texas law allows homeowners to appeal their property valuation. To do so, you must file a protest with your local appraisal district, typically in the spring, after receiving your Notice of Appraised Value. During the appeals process, you can present evidence, such as recent home sales in your area, to argue for a lower assessed value.

Property Taxes and Mortgage Payments

Many Texas homeowners pay their property taxes through an escrow account set up by their mortgage lender. Each month, a portion of your mortgage payment goes into this account, and the lender uses it to pay your property taxes when they come due. This ensures that taxes are paid on time and prevents homeowners from having to save large sums throughout the year.

Why Texas Property Taxes Are Higher

You may have heard that Texas property taxes are higher than the national average, and it’s true. However, this is because Texas does not have a state income tax, so property taxes are the primary way local governments fund essential services like public schools, infrastructure, and emergency services. While property taxes may seem high, it’s part of the trade-off for not paying state income tax.

Keeping Property Taxes in Check

With property values rising quickly in areas like Austin and surrounding regions, property tax bills can increase significantly year over year. To help control costs, here are some steps homeowners can take:

1. Apply for all available exemptions – Make sure you apply for the homestead exemption and any other exemptions for which you qualify.
2. Monitor your assessed value – Keep an eye on your property’s assessed value each year, and be prepared to file an appeal if you think it’s too high.
3. Budget for annual increases – While tax rates may remain stable, the increasing value of your home may cause your taxes to rise, so it’s wise to budget for potential increases in property tax payments.

Conclusion

Understanding property taxes in Texas is key to managing your homeownership costs effectively. By familiarizing yourself with how they’re calculated, taking advantage of available exemptions, and staying proactive about monitoring your home’s assessed value, you can better prepare for the financial responsibilities that come with owning property in Texas. If you have any questions about property taxes or need guidance on buying or selling a home, feel free to reach out—I’m here to help you navigate the Austin real estate market!