What Texas Property Tax Reform Means for Homeowners

On November 7th of 2023, Texans will get to vote on several propositions, one being Proposition 4 that offers tax cuts for property owners.

Earlier this year, Texas lawmakers passed three bills to spend $13.3 billion of a state surplus to help with rising property taxes, which are currently the 6th highest in the nation. According to the Texas Tribune, the extra cash creating this surplus comes mainly from sales tax collections, which every person pays when making purchases in Texas.

That $13.3 billion surplus is being added to $5.3 billion dollars budgeted in 2019 to lower school tax rates to total $18.6 billion.

So let’s talk about the 2 key parts of the tax cuts package that affect homeowners.

First is that the School Tax Rates Will Be Reduced.

About $7.1 billion would be sent to Texas school districts so they can lower the taxes they assess on property owners. It compresses school districts’ maintenance and operations property tax rate by 10.7 cents per $100 of a property’s valuation. This makes up the largest chunk of the tax bill for most property owners.

Secondly, It Raises the Homestead Exemption from $40,000 to $100,000.

Now, if you’re not sure what a homestead exemption is, it’s the amount a homeowner can take off the value of the house they live in before it’s taxed. So, for example, if your house is valued at $600,000, you would be taxed at $560,000 under the current exemption. With the proposed $100,000 homestead exemption, you would only be taxed on $500,000.

So, if you don’t have a homestead exemption on your current home, we would highly suggest you go do that right away. You can go to your county appraisal district website and fill out the form. You’ll see there are multiple boxes, so be sure to check off the ones that pertain to you. You have the general residence homestead exemption, but there is also the disabled person age 65 or older or a surviving spouse, the 100% disabled veteran or surviving spouse, and others. Make sure you’re getting the full benefits of a homestead exemption.

For those 65 and older, you were already eligible for a $10,000 tax cut above other homeowners ($50,000 homestead exemption), so the proposed $100,000 exemption would raise the total to $110,000.

Before we get into how much these tax cuts will save you, I wanted to take a quick pause and let you know that we have a great video about how to protest your Texas property taxes when the time comes. We interviewed an expert who worked in a local county appraisal office for a couple of decades, and lots of our viewers found this video really helpful when they went to protest their taxes. Check it out below when you're finished here.

Okay, So, What Does This Actually Mean in Potential Savings for You?

Between the increased homestead exemption and lower school tax rate, lawmakers and policy analysts are projecting that a Texas homeowner’s property taxes would be reduced by an average of 41.5%, or about $1,300 per year for a $350,000 home.

Now, remember, another benefit we get by having a homestead exemption is that we have a 10% appraisal cap. Meaning that they cannot increase our taxable value by more than 10% from the previous year. I know that saved a lot of people in the past couple of years since home values skyrocketed.

Speaking of the appraisal cap, let’s touch on a few other things within the tax cuts package.

The Law Would Create a Limit on Appraisals for Commercial, Mineral, and Residential Properties that Don’t Have a Homestead Exemption and are Valued Under $5 Million Dollars.

There would be a temporary 20% appraisal cap so that they could not increase in taxable value more than 20% from the previous year. Now this would only be valid until 2026 unless lawmakers and voters decide to continue the program.

Proposition 4 Also Includes Franchise Tax Exemptions.

This would double the amount of money a business can make before it is subject to franchise tax from $1.24 million to $2.47 million. It would also not require businesses that don’t meet the new threshold to pay franchise tax to file forms to report those taxes.

Okay, so some of you who may not be business owners might glaze over on that point. But let me tell you, if you value your small local businesses, I believe this will be helpful. I can tell you from experience that small business owners get taxed out the wazoo already. And even though we don’t meet the threshold to pay franchise tax, we still currently have to pay our tax preparer just to file a form to say that we didn't make enough money to pay taxes. So that’s another fee.

Another Aspect of Proposition 4 is that Voters Would Have a Say in Who is on Our Appraisal Boards.

Which, I personally think is a great idea. Currently, county appraisal districts appoint these positions. Under the new legislation, each appraisal district’s board of directors would include three positions elected by a majority vote at a county general election for four-year terms. This is a great way to hold people accountable.

Now, before we tell you how to take advantage of these tax cuts, I wanted to let you also know how this proposition would affect our mom and pop property investors. Those who are landlords would qualify for the reduction in school property taxes. Rental properties valued under $5 million each would also qualify for the year-over-year 20% cap on appraisal values for the next 3 years, or 2026. Hopefully this will help stabilize rent rates for those leasing from smaller mom and pop landlords.

So, How Do You Go About Taking Advantage of These Tax Cuts?

Well, first of all, you must vote yes for Proposition 4 on the November 7th ballot. And secondly, once the proposition passes, you will automatically see the benefits. It’s that easy. And the cool thing is that the changes would be applied for the 2023 tax bills due in January of 2024.

Now, as we said earlier, if you live in your home and haven’t already filed for homestead exemption, you need to do so right away through your county appraisal district office. In most situations, the exemption can be retroactive up to two years. Once you have your exemption, you do not need to reapply for it every year. It stands until you no longer live in the home.

We hope this breakdown of the 2023 Texas property tax reform, or Proposition 4, was helpful for you, homeowners. If you want to stay up to date on Texas property taxes and all things related to the Dallas-Fort Worth real estate market, be sure to sign up for our email updates below.