Part of home ownership is paying property taxes and how much you pay in property taxes is determined by the tax rate and the county’s assessed value for your home. There are two ways to reduce your property taxes: 1) vote in local elections to keep the tax rate down, and 2) contest your property value for tax purposes.
Property Tax Home Valuations
The Texas Constitution limits the increase in the appraisal district’s valuation of a homesteaded property to 10% per year, excluding any new improvements made. This provision goes into the effect the first year the homeowner qualifies for the Homestead Exemption. (Note: a homeowner only qualifies for a homestead exemption if they own AND occupy the property by 11:59 on December 31st the previous year.)
Example of Increase & Escrow Shortage
This means that if someone bought a house for $400,000 in April 2014 and the tax valuation was $300,000, the appraisal district is allowed to adjust the 2015 value to $400,000 since the 10% limit does not go into effect until after January 1st, 2015. This means that if an Escrow Account was established at closing based on the 2014 value of $300,000, there will most likely be an Escrow Shortage in 2016 – not 2015. The reason why the shortage may not occur until 2016 is because a mortgage servicer most likely won’t be aware of the county’s proposed increase in value and won’t know about the tax increase until the property taxes are due at the end of the year. This will result in an escrow short in 2016.
Protest Appraised Values
State law requires that appraisal districts appraise properties at their fair market values and that they send Notices of Appraised Values to the homeowners. A homeowner may contest the county’s assessed value if they believe it to be over the fair market value. The usual deadline for protesting the the value starts May 1st and lasts until May 31st (or 30 days after the Notice of Appraised Value was mailed to you, whichever is later). Each county will have it’s specific guidelines for contesting the value; therefore, check with your taxing authority on how to contest this value. (Note: they should send you something in the mail with the Notice of Value that outlines how to contest the value).