Property Tax: Homestead Exemption

Before you purchase a house, there are a lot of financial factors to be taken into consideration.  Memberships, utilities, down payments, closing costs, and maybe one of the most critical and long-standing, property taxes.  Texas has some of the highest property taxes in the United States with the average property tax at roughly 1.86%. Those taxes are the primary source of revenue for local governments and fund local services like schools, water systems, and law enforcement.

How Does Property Tax Work?

Residential property tax is appraised annually by the district appraiser.  The district appraiser is responsible for determining the current market value of all property within the district.  Homes are appraised at the beginning of the year, and if you disagree with the findings of the appraisal, you can take it to the appraisal review board around the beginning of May.

Homestead Exemption

Before you purchase your home, you need to be aware of the Homestead Exemption act for the exemption act may adjust what type of home you buy and where you purchase your home.  The homestead exemption allows you to save on property taxes by allowing you to exclude a portion of your home’s value from your assessment. For example, your home is valued at $100,000, and you qualify for a $25,000 exemption, you will pay school taxes on the house as if it was worth $75,000.  

Not all homes qualify for the exemption.  Only the homeowner’s principal residence qualifies for the exemption, termed residence homestead.  

Residence Homestead: The homeowners must be an individual and use the home as his or her primary residence on January 1 of the tax year.  

If you are 65 or older or disabled, the January 1 ownership residency is not required for the homestead exemption.  A homestead can include up to 20 acres as long as the homeowner owns the land and its used for the purpose related to the residential use of the house.  A homestead can be a separate structure, condominium or a manufactured home located on owned or leased land as long as the individual owning the home lives in the home.

Below is a list of the homestead exemptions available:

  • School taxes: All residence homestead owners are allowed a $25,000 homestead exemption from their home’s value for school taxes. 

  • County 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. If the county grants an optional exemption for homeowners age 65 or older or disabled, the owners will receive only the local-option exemption. 

  • Age 65 or older and disabled exemptions: Individuals age 65 or older or disabled residence homestead owners qualify for a $10,000 homestead exemption for school taxes, in addition to the $25,000 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 exemptions. 

  • Optional percentage exemptions: 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. Each taxing unit decides if it will offer the exemption and at what percentage. This percentage exemption is added to any other home exemption for which an owner qualifies. The taxing unit must decide before July 1 of the tax year to offer this exemption. 

  • Optional age 65 or older or disabled exemptions: Any taxing unit may offer an additional exemption amount of at least $3,000 for taxpayers age 65 or older and/or disabled.

To get the general $25,000 homestead exemption, you must file the Application for Residential Homestead Exemption within your appraisal district.  You have up to 2 years after the taxes on the homestead are due.  Once you file the application and receive the exemption, you do not need to reapply unless the chief appraiser sends you a new application.  You may file any homestead exemption up to two years after the delinquency date which is typically February 1st.