How Do Property Taxes Work in Texas? Texas Property Tax Guide
Texas property taxes comprise one of the primary sources of funding at the local level for counties, cities, and school districts in the state. Road maintenance, public education, and essential community services in each region rely heavily on property taxes to finance their budgets. Read on to learn how taxes are assessed and calculated, when payments are due, and more details about paying property taxes in Texas.
What Is Property Tax?
In simplest terms, property taxes are fees paid by real estate owners to local government entities where the property is located. It is typically an ad valorem tax based on the assessed value of the real estate. Governing bodies that collect property taxes use the funds to support essential services like public schools, law enforcement, fire protection, and roadway maintenance.
Real Estate Taxes vs. Property Taxes
Real estate taxes are sometimes confused with property taxes, but the terms are not always interchangeable. Real estate, or real property, is a parcel of land and any structures or improvements permanently attached to it. On the other hand, personal property is defined as moveable items such as cars, boats, equipment, or furniture.
While some governing bodies may levy personal property taxes on certain non-permanent objects, the term "property taxes" is most often associated with the value-based fees collected by local governments on fixed real estate assets.
Property Tax vs. Tax Assessment
Property taxes should not be confused with tax assessments—they are two different things, albeit parts of the same process. In short, the tax assessment is a value assigned to real estate by the local taxing entities that is then used to calculate how much the owner pays in property taxes. The fair market value of the real estate is generally reduced to arrive at an assessed worth. The actual property tax liability for a given piece of real estate is based on this assessment minus any exemptions (or plus any penalties). The tax assessment is used for billing purposes only and has no effect on a property's actual value.
Why Do We Pay Property Tax?
People often wonder what property taxes pay for where they live. In Texas, with the absence of a state income tax and relatively low sales taxes, fees levied on real property form the primary source of revenue for local governing bodies like school districts, municipalities, and county governments in the state. Property taxes are used to fund public education, emergency services, road maintenance, and other facilities and functions in the Texas counties where they are collected. This is why the lowest property taxes in Texas are generally found in more rural areas, while the areas around Texas' major metros have much higher property taxes.
Who Sets Texas Property Taxes?
When considering how Texas property taxes compare to other states, it's important to remember that there is no state-level real property tax here. Texas property taxes are established and collected at the local government level by the entities that benefit from the revenue, such as counties, schools, cities, and certain special districts.
Local appraisal districts in each county assign property values from which an adjusted, taxable assessment is established. The taxing jurisdictions may offer further exemptions and reductions before arriving at a property's taxable value. Each government entity uses a different rate or percentage in the final property tax calculations.
Who Pays Property Tax in Texas?
All property owners in Texas are responsible for paying property taxes on their real estate holdings. However, there are a few exceptions. There are various full and partial property tax exemptions for disabled veterans and their surviving spouses. Property tax exemptions are also available for senior citizens and disabled persons. The surviving spouses of first responders lost in the line of duty may also qualify for a total exemption on the property where they reside.
If I Pay Taxes on a Property, Do I Own It?
In Texas, a clear title is required to establish property ownership. Generally speaking, a landowner must be able to prove their holding through recorded property records. Paying the real estate taxes owed on a given piece of land is not sufficient to establish ownership under Texas law. However, property with delinquent tax accounts may be purchased at special foreclosure sales.
Do You Pay Property Tax on Land?
Texas ranch land and vacant real estate investments are subject to property taxes, regardless of the absence of structures or residents. In most cases, owners of unimproved property can expect a tax liability significantly lower than assessments made on improved parcels.
How Does the Property Tax System Work?
The property tax system in Texas comprises three primary parts: a county appraisal district, an appraisal review board, and the local taxing units themselves. Under the guidance of the county's chief appraiser, the appraisal district establishes property values each year. The review board attempts to resolve disputes between property owners and the appraisal district, and the taxing entities set tax rates necessary for funding their annual budgets.
Several things happen during the tax year. The process starts with the appraisal district's valuation of a property's worth as of January 1. The appraisal district also processes applications for tax exemptions, including agricultural appraisals. Near the middle of May, the review board hears any property owner protests and disputes related to exemptions and assessments.
Around August or September, counties, school districts, and other local taxing entities set their budgets and adopt property tax rates sufficient to cover their expenses. Depending on where you live, taxes may also be levied by cities and special districts such as junior colleges and municipal utility districts (MUDs). Some neighborhoods will also collect payments for PIDs, PUDs, and other districts.
Tax bills are mailed around the first of October. Property owners typically have until January 31 to pay before penalties and interest begin to accrue.
How to Calculate Property Tax in Texas
Every local taxing entity in Texas calculates property taxes using the same method. The appraised property value is reduced by any qualifying exemptions or special appraisals, divided by 100, then multiplied by the tax rate established for each entity. The product of that equation is the property tax amount owed to a particular taxing body. The formula looks like this:
(Appraised Property Value – Exemptions or Special Appraisals) / 100 x Property Tax Rate
Your appraisal notice will have a list of taxing entities that have jurisdiction in your area. If you’d like to determine what schools and special districts levy property taxes in your county beforehand, however, the list of Texas counties on the Texas Association of Counties website can help you. For example, owners of homes in the city of Fort Worth would click the link for Tarrant County.
At the bottom of each county's profile page are links for the school districts and special districts in that region. Following those links, residents will find the Tarrant County school districts, MUDs, hospital districts, colleges, and other special districts that assess property taxes in their area. The Texas county profile pages also offer relevant tax history information.
Assessed Value vs. Appraised Value
Property owners sometimes confuse assessed values and appraised values. Though both terms are related to a property's worth, their purpose and how each is discerned differ significantly.
Appraisals measure real estate's fair market value based on comparable recent sales and other market considerations. On the other hand, assessments are adjusted values used to determine a particular property's tax bill and are typically lower than appraisal amounts. Any exemptions for which a property might qualify are deducted from its assessed value, reducing the final tax amount. Assessments have no direct effect on a property's fair market value.
Does Purchase Price Affect Property Taxes?
The short answer is "maybe."
Except in limited circumstances, the Texas tax code requires that all taxable property be appraised at its fair market value as of January 1. No price changes after that date will be reflected in the tax until the next taxing year. However, sales comparisons are a factor in how the appraisal district assesses the property, and in the course of a county taxing authority's review of local property values, they could decide to base their assessment on a parcel's most recent purchase price if it's determined that the sale price represents the property's fair market value.
Do Property Taxes Change?
It's not uncommon for property taxes to change. In fact, increases in neighborhood real estate values and the dynamic funding needs of local governments frequently result in rising property taxes. Certain improvements that expand a property's value will also result in a likely tax increase. On the other hand, if comparable area property values decline, property taxes could change accordingly.
It’s also entirely possible for the tax rate to go down, but the tax bill to go up. This happens in cases where the real estate market is booming and home values increase rapidly. Individual taxing entities can then tax a lower percentage of a home’s rising value and still meet or exceed their budget requirements.
Do Property Taxes Increase Every Year?
Property tax increases are an unfortunate reality, as both home values and local tax rates always seem to rise from one year to the next. Fortunately for Lone Star State residents, the Texas property tax increase cap can help guard against large swings and unplanned tax liabilities.
State law stipulates that the taxable value on properties qualifying for homestead exemption cannot increase by more than 10 percent yearly. This is particularly beneficial in strong real estate markets where significant annual appreciation would otherwise result in an unexpectedly large property tax bill.
Do Property Taxes Ever Go Down?
Property taxes can drop under certain circumstances. As mentioned, if a particular real estate market declines in value, related property taxes might also see a proportional decrease. Occasional tax relief measures also find their way to the state's ballot boxes, putting increased exemptions and reduced tax rates in the hands of Texas voters.
How to Lower Property Tax in Texas
Texans can generally lower their property tax liability through qualified exemptions or by protesting the property's appraised value.
Texas property tax exemptions may be partial or total. A partial exemption removes either a percentage or a fixed dollar amount from the property's appraised value. In contrast, a total exemption excludes the entire amount. Texans can apply for various property tax exemptions through their local appraisal district, including the residence homestead exemption, age 65 or older or disabled persons, and exemptions for disabled veterans and their surviving spouses.
Property owners can also lower their taxes by protesting the appraised value. Such appeals are filed for free with the local appraisal district and typically result in an informal meeting, a formal hearing before the appraisal review board, or both.
How Much is the Homestead Exemption in Texas?
All Texas property owners who qualify for a Texas residence homestead exemption are entitled to a $40,000 reduction in their home's value for school district taxes. Homeowners age 65 or older and disabled persons qualify for an additional $10,000 homestead exemption for school taxes. Certain optional exemptions may also be offered by counties, cities, or any of the special districts in an amount not less than $5,000. And, any local taxing body is permitted to offer an additional exemption of at least $3,000 to property owners age 65 or older or disabled.
At What Age Do You Stop Paying Property Taxes?
Texas tax code allows homeowners at least 65 years old or disabled to defer their property taxes—though the taxes will still be paid eventually. Eligible senior homeowners must first file an affidavit with their county's appraisal district requesting a halt to further property tax collection. This deferment is only temporary. When the homeowner passes away, or the property is sold, the accrued taxes plus interest become due and payable. Accounts are typically settled with proceeds from the deceased's estate or the sale of the property.
When Are Property Taxes Due in Texas?
In Texas, county tax assessor-collector offices begin mailing property tax bills around the first of October. Strictly speaking, property taxes are due upon receipt. However, Texans have until January 31 of the following year to remit payment without accruing penalties or interest. Property owners who have not received their bills by mid-January are advised to contact their local tax office to avoid delinquency.
If property tax payments are not received by the end of January, they will be designated delinquent on February 1. Property owners with delinquent property taxes face stiff penalties for non-payment, including the possibility of tax liens and eventual foreclosure.
Are Property Taxes Paid in Advance in Texas?
Property owners in Texas generally pay real estate taxes in arrears, so no. The property tax calendar in Texas runs from January 1 through December 31, bills are typically received between October and November, and property tax payments are due by the end of the next January for the previous 12 months.
Some counties, however, allow for prepayment of property taxes. For example, owners of homes in Austin and property elsewhere throughout Travis County can make property tax prepayments online or via automatic withdrawal. Any prepaid funds are kept in escrow until taxes are due.
Note that while the Texas tax code allows for partial payments, the entire property tax bill must be satisfied before February 1 to avoid delinquency.
What Happens If You Don't Pay Property Taxes?
Failure to pay Texas real estate taxes exposes property owners to severe penalties, interest, and legal complications, up to and including losing their homes.
Unpaid property taxes are immediately classified as delinquent on February 1 and are assessed a six percent penalty plus one percent interest. Penalties continue at one percent monthly until July 1, when the penalty increases to 12 percent, while interest continues accruing at the rate of one percent per month, with no maximum. Taxing units may also levy additional fines of up to 20 percent to cover their collection costs.
Ultimately, delinquent taxpayers may be sued by the local taxing districts, with court costs and attorney's fees added to the bill. Courts also have the authority to foreclose on the delinquent property, sending the property to auction to pay the taxes owed. However, it is possible for a homeowner to redeem a home with delinquent property taxes, both before the sale and up to two years after it's been sold.
How Long Can You Go Without Paying Property Taxes?
Texas law doesn't offer a set timeframe for foreclosing on delinquent property. Foreclosure proceedings are typically initiated on a case-by-case basis by individual taxing entities.
It's important to note that the Texas tax code automatically places a tax lien on all properties, effective January 1 of each year. That lien remains until the property tax obligation is fulfilled. If the bill isn't paid in full, foreclosure proceedings can begin at the discretion of the taxing bodies, with just 21 days’ prior notice before the foreclosure sale. In many cases, property owners should have time to arrange for repayment before foreclosure, albeit with the penalties and interest described earlier.
Paying Property Taxes in Texas
While Texas property taxes can be on the high side compared to other states (though several states have higher rates, bills, or both), it's important to remember that Texas has no personal income tax. Sales tax rates in the state are also below the national average. In the absence of revenue sources other states use for essential services, property taxes in Texas are integral to serving its local governments, communities, and residents. However, if you feel your property tax bill is too high, it’s possible that it might be. Once you understand the process behind Texas property taxes, it becomes much easier to ensure that you’re only paying what you need to.