Home values across Texas have been skyrocketing over the past couple of years, meaning the assessed values of Texas properties have, in many cases, increased in excess of 10%. Many property owners are finding that they are getting their property’s market value significantly reduced by protesting, but not seeing any reduction on their property taxes. This is most likely due to the Homestead Cap.
What is the Homestead Cap? Texas Tax Code limits increases of the total assessed value to 10% from year to year for properties under the homestead exemption, which takes effect after the exemption has been in place for two consecutive years. Note that this 10% increase excludes any added improvements. This is especially useful in hot housing markets where values are rising faster than 10% per year. Here’s an example to illustrate:
A townhome close to downtown Austin was assessed at $400,000 last year, is the owner’s primary residence with a homestead exemption in place for more than two years. This year, the county assessor assigned the townhome a market value of $500,000. This property’s appraised value increased by $100,000, a whopping 25% from their assessment last year. However, since the townhome was filed with a homestead exemption, the assessment value cannot increase more than 10% from the previous year. Therefore, this 10% cap limits the assessed value to no more than $440,000 this year. To make any difference in the property tax bill, the owner would need to protest and reduce the market value by $60,000 or more to reduce the $500,000 value of the property to a value below the homestead capped amount of $440,000. Generally speaking, homeowners can expect a 5-10% reduction of their market value from a successful protest, resulting in a potential valuation between $475,000 to $450,000. So, even with a reduction of the market value of the property resulting from a very strong protest case, a property owner would not see any reduction on their tax bill since it is not below $440,000.
2021 Assessed Value: $400,000
2022 Market Value: $500,000
2022 Assessed Value: $440,000
Homestead Value Cap: 10% ($40K)
2022 Adjusted Value After Getting A Reduction of $50,000 via Protest: $450,000
Property Tax Bill Savings = $0
While there were no realized savings on this owner’s tax bill this year, this is still a good result for several reasons:
First, through the process of protesting, owners are able to verify the accuracy of the Appraisal District’s information about the property, which is likely to help reduce the chances that they will see such high increases in the years to come.
Second, if an owner decides to sell their property in the future, buyers may be more attracted to their property over others because the overall cost of purchase will be lower given the prorated taxes due for the remainder of the year after purchasing the house (adjustments to sale price).
Third, having a reduced property value will benefit the property owner if they choose to transfer their homestead exemption to another property, or turn their current primary residence into a rental property.
Fourth, it doesn’t cost anything to try! Ownwell’s savings-or-free guarantee means that even though our team may spend hours building and presenting the strongest protest case possible, if we aren’t able to reduce the final tax bill, we don’t charge a cent.