Answering Your Questions on Property Tax Relief

August 10, 2023

Since the Legislature passed the historic $18 billion property tax relief package I’ve received a number of questions concerning the specific details and especially what part voters play in approving this tax relief in the November Constitutional elections.  
Here is a summary of some of the most common questions. Hopefully this will be helpful to you.
Q:  What does the overall package contain?
A:   The components of the $18 billion in tax relief are:
$ 12.5 billion in tax relief from “compression”
(that means the state is providing more funding to school districts, thus reducing the local school property tax rate.  Specifically, school district property tax rates will be compressed – or reduced – by an average of 18 cents per $100 valuation for all homeowners and business properties statewide).
$   5.3 billion from an increase in the Homestead Exemption
($100,000 of your home value will be exempt from taxation, up from $40,000)
$   0.2 billion for “circuit breaker” (or appraisal caps) for non-Homestead properties
(this includes residential or commercial properties valued at $5 million or less)
Q:  How much money will I save if the tax relief package is passed by the voters?
A:  Based on an average home value of $331,000, taxpayers will save an average of $1,300 a year.
Q:  I’ve also heard there is tax relief for small businesses.  Is that in addition to the $18 billion above?
A:  Correct.  In addition to the tax relief above, we doubled the amount of a taxable entity’s revenue that is exempted from the franchise tax from $1.235 million to $2.47 million. Because of this change, we estimate that approximately 67,000 small to medium sized businesses will no longer pay the franchise tax.
Also, if you don’t owe any tax, you will no longer be required to file a “no tax due” franchise tax return form.  This will reduce paperwork and reporting requirements that cost time and money.
Q:  What part of this tax relief package must be approved by the voters? 
A:  Proposition 4, which will implement the additional tax rate compression, the increase in the homestead exemption and the appraisal board reform (discussed below), must be approved by the voters in a statewide constitutional election. Early voting runs from Monday, October 23rd, to Friday, November 3rd, and Election Day is Tuesday, November 7th.
Q:  How does the homestead exemption work? 
A:  You will see significant property tax relief from a major increase in your homestead exemption, available to taxpayers who own and reside at a property as of Jan. 1 of the year.
For example, if your home is valued at $300,000, currently you can take a $40,000 homestead exemption, and you are taxed only on $260,000. However, because of legislation just passed, if approved by the voters you will be able to claim a $100,000 exemption, meaning you will be taxed on only $200,000 of the $300,000 appraised value. 

Q: How does this impact me if I’m over 65 or Disabled?
A:  If you are a homeowner over 65, or a disabled homeowner, you will continue to receive an additional $10,000 homestead exemption.  Therefore, if Prop 4 is approved, your homestead exemption will be $110,000 instead of $100,000.  
As you may know, school districts are not allowed to increase property taxes on an older or disabled adult; the amount owed is capped where it was for the first year they qualified.  If Prop 4 is approved, frozen tax bills will be recalculated to account for the increase in the homestead exemption and will refreeze at the new, lower calculated amount.
Q:  I keep hearing about this “circuit breaker” that will apply to other properties.  Can you explain how that works? 
A:  We passed a 3-year “pilot program” that will apply to other properties such as rental properties or others you may own that are not your primary residence. For those properties valued at $5 million or less, appraisals can’t go up more than 20% from the previous year. There is currently no such cap for those properties.

Q:  When will I see the relief? 
A:  It’s different for each component of the tax relief package.
Homestead exemption:  If approved in November, the tax cuts from the homestead exemption will be retroactive to January 1st of this year. This means you will see the tax relief reflected on your property tax bill for the 2023 year that’s due by January 31st, 2024.  

Compression: The tax relief from the compression portion will be effective for tax year 2023, for the bill that is due January 31st, 2024.
Circuit Breaker/Appraisal Cap:  If approved in November, this three-year pilot program will be effective for the 2024, 2025, and 2026 tax year.
Franchise Tax Relief:  The doubling of the franchise tax exemption will take effect January 1, 2024 and applies only to franchise tax reports originally due on or after that date.
Q:  Won’t the appraisal values just keep going up and wipe out any benefit of this increased homestead exemption?
A:  The Legislature has passed homeowner protections to prevent that from happening. In 2019, we passed a law which prohibits cities and counties from raising property tax revenue more than 3.5% without voter approval; for school districts, that number is 2.5%. 
Q:  What else do I need to know about the appraisal process?
A:  Well, we took some important steps to provide more direct citizen involvement in the appraisal process, but again, these changes must be approved by the voters in November.  
In counties with a population of 75,000 or more, local citizens will be given the opportunity to elect 3 new members to their local appraisal district board of directors (currently, all appraisal boards are appointed).  These new directors will first be elected in the May 2024 elections and initially serve 2.5 year terms.
Q: Let’s say I only owe $100,000 on my mortgage. If the $100,000 homestead exemption passes, does that mean I won’t pay any more school taxes?  
A:  Your property tax bill is based on your taxable value, not how much you owe on your mortgage.
Q:  I love the idea of tax savings, but I’m concerned that this is money that would have gone to fund our school systems.  
A:  The state of Texas is fully funding education, so school districts will receive the same amount of money they would have without this property tax cut.
Q:  My monthly mortgage payment is partially to pay down my home, and partially to pay for my property taxes through escrow.  So should my overall payment decrease next year?
A: Most mortgage companies re-calculate your property payment each year. So all else being equal, your overall mortgage payment should go down next year to reflect your lower property tax bill.
Q:  What happens next?  
A:  First, local school boards are adopting rates right now with all of the compression factored in (that is, the increased portion of local education funding that will be coming from the state).  As required by law, local tax assessors will calculate the bills and send them to you on the assumption that Prop 4 will be approved.  These new estimates of your property tax bill will arrive in October or November.   In the unlikely event that Prop 4 is not approved by voters, you would receive a supplemental property tax bill.
That’s why it’s important to VOTE YES FOR PROP 4.  Reminder:  Early voting runs from Monday, October 23rd, to Friday, November 3rd, and Election Day is Tuesday, November 7th.