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Editor’s Note: This article is the second installment in a three-part series from The Texas Tribune regarding Texas’s proposed property tax laws. It was originally published as one article titled “Billions in property tax cuts need Texas voters’ approval before taking effect. Here’s what you need to know. ” A $12.7 billion package of property tax cuts goes before voters later this year, promising to deliver savings to millions of property owners in Texas suffering from skyrocketing tax bills.
Gov. Greg Abbott signed the legislation creating the cuts last month, officially closing months of negotiations among the state’s top Republicans. But before they can go into effect, Texas voters will first have to decide in a constitutional election on Nov. 7 whether to allow the state to spend billions in taxpayer money — mainly collected from Texans during the past two years — to pay for the massive cuts. If approved, an outcome that seems likely given voters’ support of tax cuts in the past, the changes would be applied for the 2023 tax bills due in January.
Here’s what you need to know to make your decision.
How would the changes affect homeowners under 65?
Some 5.7 million households in Texas are homesteads, the taxfriendly word for a home that serves as its owner’s primary residence. These can be single-family homes, duplexes or even a condo.
Policy analysts and lawmakers project that the expanded homestead exemption and lower school tax rate would reduce a Texas homeowner’s property taxes by an average of 41.5%, or about $1,300 per year for a $350,000 home.
The expanded franchise tax exemption and 20% appraisal cap do not apply to property that already gets the homestead exemption. But the current 10% appraisal cap for homesteaders will remain in place.
Let’s look at a few examples. The value of a Corpus Christi homeowner’s sprawling property near the waterfront was $650,000 last year, and under the current $40,000 homestead exemption, she paid taxes on $610,000 of that property’s value. This year, the home’s property assessment was capped at $715,000. Under the proposed $100,000 exemption, the homeowner would pay taxes on $615,000 of her property’s value — instead of paying taxes on $691,000 under the current exemption. Based on current tax rates, she’d likely save more than $100 per month on her tax bill.
Meanwhile, the owner of a home in the Panhandle city of Amarillo valued at $315,000 this year would get savings of about $80 per month. And the owner of a million-dollar home in Spring, near Houston, might save about $150 per month.
How would the changes affect senior homeowners and those with disabilities?
In addition to the new $100,000 exemption, Texas homesteaders with disabilities and those 65 and older will continue to qualify for the extra $10,000 exemption they are already allowed to receive — for a total exemption of $110,000.
The new law also addresses an issue that cropped up when the exemption was raised from $25,000 to $40,000 in May 2022.
Texans 65 and older and those with disabilities, many of whom are on fixed or limited incomes, have had their school property taxes frozen for many years to protect them from rising tax rates and property values. But because of the way the $40,000 exemption increase was written, those homesteaders did not benefit from the higher exemption when voters approved it last year.
If the constitutional amendment passes, it would provide money for those homeowners who lost out on tax savings last year due to their frozen taxes and it would ensure they benefit from any future exemption increases that might lower those taxes.
These groups of homeowners would also see their school taxes decrease. The school tax rate reduction and the $110,000 homestead exemption are expected to lower property taxes for senior and disabled homeowners by about $1,450 per year on a $330,000 home, Bettencourt said.
How would the changes affect small businesses?
If voters approve the new cuts, entrepreneurs who own the property their businesses occupy would see their school M&O taxes decrease by 10.7 cents per $100 valuation.
In addition, commercial properties valued at less than $5 million would be protected from excessive year-over-year value upsurges with a 20% cap on how much a property’s appraisal can go up. The cap would be in place for the next three years until lawmakers and voters decide whether to renew it.
It wouldn’t be necessary for a business to be headquartered in Texas in order to get the property tax breaks; any land it owns within the state would qualify to receive the benefits if it doesn’t exceed the value limit.
Here’s an example. A businessman in Corpus Christi saw the value of his office on a prime parcel of waterfront downtown increase by 18% from 2021 to 2022 — and then by 48% from 2022 to 2023, according to tax records. In fact, since 2019, his property has nearly doubled in value.
The property is now worth $638,000. Because that amount is under $5 million, the proposed appraisal cap would apply to his building — and it would take $123,000 off his valuation this year.
Property that doesn’t increase in value more than 20% this year won’t see any benefit from the cap.
Business owners who rent the property they use would not be able to take advantage of the proposed school tax cuts or the 20% appraisal cap, unless they are in a commercial lease that ties rent to property taxes.
But they could take advantage of some of the franchise tax savings, just like businesses that own the property they’re on.
The tax-cuts package would also double the amount of revenue a business could make before it has to start paying franchise taxes from $1.24 million in a year to $2.47 million. The move would remove roughly 67,000 additional small-to-medium businesses from the franchise tax rolls.
Businesses that don’t meet the new threshold for franchise taxes would no longer be required to file $0 tax returns, saving them administrative and labor costs.
