Favorable changes to the homestead exemption here in Texas were recently voted into law on November 7th, 2023! Homestead exemptions can save homeowners a lot of money in property taxes on their primary residence and now, homeowners will be able to save even more in property taxes! With Texas having some of the highest property tax rates in the country, this is something every Texan can celebrate! So, if you have questions about the changes, how they will affect your property taxes, or even about homestead exemptions themselves, we are going to break it all down for you.
Note: The information below applies specifically to Texas homeowners.
What is a Homestead Exemption?
A Homestead Exemption allows for a tax break on whatever property you consider your primary residence, or “homestead”. In order to qualify for a homestead exemption, this must be a residential home and not owned by a corporation. This exemption lowers the valuation of your home according to your taxing authority, which ultimately results in lower property taxes!
For example, if your home is valued at $500,000, but you qualify for a $40,000 exemption, the property tax rate would be applied to the $460,000 value rather than the $500,000 appraised value.
How is my home valued?
It’s important to remember that there is a difference between an appraisal done by the county and an appraisal done as part of the home-buying process. The appraisal done by the county has no impact on what your home might sell for on the current market.
For tax purposes, the county assesses your home and determines its value according to the state. The county has a limited picture of your home. They can only see the exterior of the home, what you paid for it, and any permits that have been pulled for it. They also can not see what your home was appraised for at the time of purchase. So, they provide an estimate based on these limited factors. Typically, your appraisal done by the country for tax purposes is much lower than what you’d be able to sell your home for on the current market.
So what’s changed?
Prior to the new legislation passed in November, the value of a Texas homestead exemption was $40,000. Meaning, that if your home was appraised for $500,000 by the county, they would take $40,000 off of the appraised value and apply the property tax rate to that reduced amount (i.e. $460,000).
Now, the new legislation increases the homestead exemption value to $100,000! This means that an appraised $500,000 home would only be taxed on a $400,000 value. This will result in a significant reduction in tax bills for every homeowner in the state!
There is also some good news for our investor clients! Previously there was no cap on the amount your appraisal could increase year over year for commercial, mineral, and residential properties. Now, these properties that do not have a homestead exemption and are valued at less than $5 million will have a 20% cap on their value growth each year for the next three years. We believe this will also lead to impactful savings for investors in these property types.
What do I do if I’ve already filed for a homestead exemption?
By now, you should have already received your property tax bill for the year, which may or may not have already reflected these changes in the bill depending on your county. If it doesn’t reflect a $100,000 homestead exemption, then wait for a new bill before paying. Taxes aren’t due until January, so it may take some time for your county to make those updates. If you already paid your taxes, don’t panic! You will receive a refund check reflecting the difference in tax amounts with the new legislation in effect.
What should I do if I haven’t filed my homestead exemption?
If you’re a current homeowner and you haven’t filed for a homestead exemption, you should finish reading and go file now! It’s completely free to you and is a simple process. Homestead exemptions are filed with your appraisal district for your county, which will be on the county’s website.
File an “Application for Residential Homestead Exemption”, ideally the first tax year you are a resident. If you are delayed in filing, you can get a retroactive tax break of up to 2 years. And the good news is, once you apply, you do not need to reapply each year! Your homestead exemption will continue as long as you remain the owner of that home.
Filing a Homestead Exemption is easy, and it’s worth your time to save major money on your property taxes. We think this recent change in legislation is a huge win for homeowners and we want to make sure you can take full advantage. If you have any further questions, we’re just a call, text, or email away!
Until next time,
Brianna & Keelie