Understanding the Property Tax Process

The property tax is the primary source of local government revenue in Texas and provides funding for the services provided by counties, cities, school districts, and a variety of special entities such as community colleges, port authorities, hospital and flood control districts, and municipal utility districts. While the total combined state and local tax burden in Texas is among the lowest in the nation, the portion of the tax burden borne by property taxpayers in Texas is relatively high.

Under Texas law, all real property (land, buildings, etc.) and tangible personal property used for the production of income (business inventories, equipment, etc.) is taxable at its January 1 market value unless exempt by law, or unless subject to special appraisal provisions, such as the appraisal of agricultural land at its productivity value.

Three factors determine the total amount of taxes imposed on a property. These include the appraised value established by the appraisal district for the county in which the property is located; the exemptions, if any, to which that property may be entitled, such as the homestead exemption for owner-occupied residential property; and the tax rates set by the governing bodies of the taxing units (jurisdictions) in which the property is located. The purpose of the appraisal is to allocate the tax burden fairly among all taxpayers.

For owner-occupied residential property receiving a homestead exemption, appraised value may be lower than the property’s market value because of what the law refers to as the “homestead cap.” Under current law, while a homestead property’s January 1 market value isn’t capped, that property’s appraised value is capped at a maximum increase of 10% each year. For example, the January 1 market value of a capped residence might be $200,000. However, if that home were appraised at $175,000 on January 1 of the prior year, this year’s appraised value would be $192,500 ($175,000 x 1.10). A residential property qualifies for the cap the year after the year the owner first receives his or her homestead exemption on the property. In our present economy, there are likely to be situations where the market value of a home may have decreased as of January 1, but the current year's appraised value may still increase because it was capped the previous year at less than the current market value.

If you'd like more information on the property tax process, please read our Guide to Understanding the Property Tax Process.