What Are Property Taxes?
Property taxes are a central part of home ownership. They fund everything from county hospitals to local schools. Usually, taxes go straight to local authorities through the mortgage’s escrow account. Otherwise, they come from the homeowner directly.
Are Property Taxes Deductible?
Sometimes. You can often deduct state and local property taxes for tax relief purposes. However, it’s not always possible to do this. Financial limits may also apply.
The Mortgage Mark team is happy to answer any questions you might have about reducing your property tax.
Home Property Tax: How to Calculate a Home’s Value
How are property taxes calculated? It comes down to the home’s value.
There are three ways to value a home. The valuation determines the tax payable, so the calculations matter.
- Market value: The amount someone is actually willing to pay for the home.
- Home loan appraised value: The lender values your home based on market comps.
- Central Appraisal District (CAD) tax value: The county decides how much your home is worth for tax purposes.
Property Tax and Central Appraisal Districts (CAD)
Central Appraisal Districts (CADs) are responsible for assessing the tax value of a home.
During the first year or two of home ownership, the tax value is generally comparable to the sales price of the home. It’s also worth noting that the CAD does not receive any information relating to the mortgage appraisal. Furthermore, the appraiser doesn’t take the CAD’s valuation into consideration either.
Central Appraisal Districts determine tax values once a year. In Texas, the CADs assess tax values around March and allow homeowners to protest these tax valuations through April or May. Ideally, you want a low tax value to lower your tax obligation. The tax valuation doesn’t impact your market value or appraisal value.
CAD websites are helpful tools to research estimated property taxes. They also provide other helpful information about a home. CADs websites provide the county’s value assessment for a home. While this may not be indicative of the true market value of the home, it is the basis for property tax calculations.
See the “Helpful Links and Tax Calculator” section at the bottom of this page for the most common counties in the north Texas area.
Property Tax Calculations
Let’s take a closer look at how to work out tax rates.
To calculate the amount of property taxes on a home you’ll need to know three pieces of information:
- The CAD’s assessed value of the home
- The tax rates
- Applicable exemptions
With this in mind, let’s consider property tax rates.
Property Tax Rates
In north Texas, tax rates range between around 2.1% and 2.8%. We typically use 2.3% to 2.5% for rough estimates. An example of a tax rate breakdown is:
- City = $.797
- School = $1.282
- County = $.253
- College = $.125
- Hospital = $.286
When added together these total $2.74 which means that for every $100 in home value a homeowner pays $2.74 in taxes (or $.0274 for every $1). Using these numbers someone that owns a home with the CAD assessed tax value of $400,000 will pay $10,960 in annual property taxes ($300,000 x .0274).
Who Pays Property Taxes at Closing?
How are property taxes handled at closing? Let’s take a look.
In Texas, the property taxes are due at the end of the year. The taxing authorities will only accept payment from one entity. Therefore, when you sell or buy a home, the property taxes will be prorated at closing so that each party pays their portion of the year’s taxes.
When closing on a home when taxes are not due, the seller will provide a prorated tax credit for the portion of the year they owned the home. For example, an August 15 closing will show the seller paying a prorated tax credit to the buyer for taxes owed from January 1 through August 15. The buyer will then be responsible for the full year’s tax payment when they come due.
In contrast, the seller will be required to pay the property taxes in full to the taxing authorities on the Closing Disclosure (CD) if taxes are due at the time of closing. In this case the buyer will provide a credit to the seller for their portion of prorated taxes.
Example: if the closing date is December 12th the seller will pay the full tax bill and the buyers will prorate the sellers taxes from December 12th through December 31st.
Prorating Property Tax on Mortgages
In Texas, the exact amount of annual property taxes are unknown until property taxes come due in October. (Side note, the CAD does send an estimated tax bill to homeowners in March when they issue their notice of tax values).
Therefore, when closing on a home before taxes are due, the prorated taxes at closing come from an estimated tax amount. Using the previous year’s taxes as a guide provides the estimated amount. However, if the tax bill is due (which only occurs for closings after October in Texas) the prorated tax amounts will then be accurate using the current bill.
Reconciling Taxes Paid and Credited
When the prorated taxes at closing are based on an estimated tax amount, the buyer and sellers can require the other party to reconcile the difference. This occurs only once the actual tax amount is known at year-end. While certainly a good thought, the vast majority of the time neither party follows through with this. The dollar difference is typically a nominal amount and most folks don’t want to waste the time tracking down and hassling a stranger for a few bucks.
Lower Your Property Taxes… for free
There are three (free) ways you can lower your property tax obligations:
- File for any applicable exemptions: homestead exemption or the over 65 and/or disabled person exemption.
- Contest your property’s CAD tax value.
- Lastly, vote in local elections to lower your tax rates.
Protest CAD’s Taxable Value
Under Texas state law, homes must be appraised at their fair market value. Appraisal districts must send Notices of Appraised Values to the homeowners around March.
- If the new homeowner disagrees with the value, they can challenge it.
- Homeowners normally have until May 31 to challenge the valuation.
Every county has different guidelines for challenging valuations. Check with your local taxing authority.
Buying a Home with Existing Tax Exemptions
Some homes have tax exemptions in place. Although the exemptions seem attractive, they can result in higher tax and monthly mortgage payments once the exemption ends. The two most common real estate tax exemptions are:
- Homestead exemptions
- Over 65/disabled persons exemptions
Existing Homestead Exemption
Some homes have homestead exemptions in place. This exemption lasts for the rest of the year. But for the exemption to continue afterwards, the new homeowner must file an exemption after January 1. So, you would file after January 1 for the new year for the exemption to stay in place.
If the home is not to be the primary home, you’ll benefit from the exemption until the year ends. The exemption will expire permanently on January 1, though. Property owners should be aware that taxes increase without the exemption.
Exemptions for Over-65s
Does your new home have an over-65 or disability exemption? The rules are slightly different.
If you’re over 65 or disabled, you can file for the exemption immediately after closing. There’s no need to wait until the following year. And if there’s an existing exemption, it might stay with the home anyway until the following year. Here are the rules for determining whether the exemption stays with the home.
- If you’re over 65 or disabled and don’t create an exemption on another property: the existing exemption stays in place.
- On the other hand, the exemption could be removed after closing. Annual property taxes are then prorated based on the seller’s exemption amounts. The new homeowner’s exemptions are also considered.
Learn More About Property Taxes in Texas
Do you need to determine local property tax rates? The easiest way to determine the property taxes for a property is to visit the County Appraisal District websites. To find your county we suggest you Google “X County Appraisal District” where “X” is the name of your county.
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