Are you looking for a home in Texas? Then it’s important to understand how Texas homestead exemption rules affect you.
But what is a homestead exemption in Texas, and how is the value calculated? Below, we explain, in generic terms, how homestead tax exemption in Texas works.
Each county has its own specific process. Be sure to check out the rules as they apply in your chosen county.
What Is a Homestead Exemption?
Put simply, a homestead exemption lowers the taxable value of your property. This means you will pay less property tax on your home.
As of August 2023, you’re entitled to up to $40,000 in value reductions. This is only a general guideline figure, though. Every county and tax district has its own rules. For example, you might be entitled to more exemptions.
How Much Is a Homestead Exemption in Texas?
It’s free to file a homestead exemption. After closing on your purchase, you’ll get a ton of junk mail/solicitations to pay for filing your homestead exemption. You do NOT need to pay for this service. You can easily file your homestead by yourself.
Therefore, don’t let companies that offer to do it for you take advantage of you.
Who Can File a Texas Homestead Exemption?
As of January 1, 2022, you are eligible to qualify and file for a homestead exemption as soon as you own and occupy your home (as your principal residence). Also, you have to make your application before April 30th of the tax year for which you are applying. Late applications for a residence homestead exemption are accepted up to two years after the delinquency date (February 1st in most cases).
When Should Buyers File a Homestead Exemption in Texas?
You should file the application with your local CAD no later than April 30th. The process is pretty simple. Just print the form for the Homestead Exemption on your county Central Appraisal District (CAD) site or file online if that option is available.
You should always file by the April 30th deadline. This ensures that the Notice of Appraised value reflects the exemptions.
How much is the homestead exemption in Texas? Good news – it’s free! There’s no cost to file and you can easily do it yourself.
Are There Other Exemptions I Can Claim?
Possibly. It depends on factors such as your age and personal circumstances. For example, you may qualify for over 65s and/or disabled persons exemptions.
You can still apply for these exemptions even if you’re filing for a Texas homestead exemption.
Property Tax Homesteaded Property Limits
Under the Texas Constitution, there’s a cap on how much a property valuation can increase for homesteaded properties. In Texas, there’s an increase limit of 10% per year. However, there are exceptions for home improvements.
When does this provision take effect? January 1st of the tax year following the year you qualified for the exemption.
Example of Increase & Escrow Shortage
Here’s an example of how property tax valuations might be affected by the January 1st deadline.
Say someone bought a house for $400,000 in April 2014. 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.
Thus 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.
Why might the shortage occur in 2016 rather than 2015? Typically it’s because the mortgage servicer won’t know about the proposed value increase until taxes are due at the end of the year. Once the mortgage servicer learns of the value increase, the escrow shortage takes effect. In our example, this would be in 2016 rather than 2015.
Filing for A Homestead Exemption in Texas
There are a few steps involved if you’re filing for a homestead exemption.
First, you must qualify for a Texas homestead exemption. To qualify, you must own and occupy the home as your principal residence. You’ll need to show that your driver’s license address matches your home address.
Next, you must file before April 30th of the relevant year. Although it’s free to file the homestead exemption application, you need to file in time.
Don’t let anyone charge you a fee for filing a homestead exemption!
Frequently Asked Questions About Homestead Exemptions and Related Rules
What is a CAD?
CAD stands for Central Appraisal District and each county has one. The purpose of the CAD is to appraise all property in that county at market value equally and uniformly for the purpose of property tax assessment and to communicate that value annually to each taxpayer and taxing jurisdiction.
Hence, this is the same appraisal district you use to keep your property taxes lower and contest the values. The Central Appraisal Districts of North Texas are Dallas CAD, Collin CAD, Denton CAD, Tarrant CAD, and Rockwall CAD.
What if you are unsure if you have filed in the past?
You can call or check your CAD’s website. Likewise, you can check your county’s Central Appraisal District’s website or call them directly to verify.
What If I Forgot To File Last Year?
You should aim to file in time. However, late applications are accepted up to two years late (usually by February 1st).
What documentation does a homestead exemption require?
You will need your Texas Driver’s License with the address matching the property for the residence you are applying for the exemption.
How much can a homestead exemption save me?
A homestead exemption can save hundreds, if not thousands of dollars (due to the price of the home).
For example, a $300,000 home with a $15,000 homestead exemption has a school tax rate of 1.54%, which means the property taxes would be lowered by $231 per year. ($15,000 exemption x .0154 tax rate = $231 savings).
Similarly, if that same home has a 20% value reduction homestead exemption for the county with county tax rate of .25%, that saves the homeowner $150 per year ($300k value x 20% value reduction = $60,000 value reduction x .0025 tax rate = $150 savings).
Can I have more than one exemption?
No, only a homeowner’s principal residence qualifies.
Do I have to apply each year?
No. If you had a homestead exemption on your home the previous year, you won’t need to reapply again. The exception is if your chief appraiser requires it.
However, if you don’t have an exemption on your current home, then you need to file for one.
Benefit of the Homestead Tax Cap
Above all, the benefit of the Homestead Tax Cap is a limitation on increases in appraised value. While in an appreciating housing market, this is especially great.
The cap applies to your homestead beginning January 1st of the tax year. This is the tax year following the year your home qualified for the exemption.
Taxing authorities typically adjust your first year’s tax value to be comparable to your purchase price.
The cap law provides that the taxable appraised value cannot exceed the lesser of:
• This year’s market value of the property; or
• Last year’s appraised value, plus 10% plus the value added by any new improvements made to the property.
If homes are appreciating at more than 10% per year, the cap can certainly provide substantial tax savings.
If I own 50% of the home I live in, do I qualify for the Residence Homestead Exemption?
Yes. However, if you qualify for a homestead exemption and are not the sole owner of the property to which the homestead exemption applies, the exemption you receive is based on the interest you own. For example, if you own 50% interest in a homestead you will receive one half, or $7,500, of a $15,000 homestead offered by a school district.
Helpful Homestead Links and Tax Calculators
To file a Homestead Exemption, you’ll need to complete the Homestead Exemption form and file it. Download the form then follow the instructions that the county site provides.
Are you looking to apply for a home loan or mortgage in Texas? Contact us now to apply!
Mark Pfeiffer
Branch Manager
Loan Officer, NMLS # 729612
972.829.8639
MortgageMark@MortgageMark.com
We assist clients with all type of mortgage loan programs