What You Should Know About Property Taxes When Buying a House in Austin, TX
Texas does not have a state income tax, but the government has to get its funding from somewhere! In Texas, sales taxes and property taxes provide an important revenue stream for our government and its agencies.
Property taxes in Texas are a sore subject for many residents! As property values have skyrocketed so too have property taxes, which are based on yearly county assessments of value.
How are property taxes determined in Texas?
On April 1 of each year, counties begin to mail out tax appraisals. This is the county’s estimation of your property’s value. Your taxes are calculated by multiplying your area’s tax rate by this appraised value. Area tax rates vary widely depending on how many entities have taxing authority in your jurisdiction. If you live in Travis county, you can use this Truth in Taxation tool to find out more.
Texas is a non-disclosure state, which means the counties do not have access to actual sold data from the MLS. Many times, they will ask buyers to voluntarily provide that information. Normally, I advise clients not to provide price information to the county, but there are times when it is beneficial to disclose. Reach out if you’d like to discuss your particular situation.
If you want to protest (and lower) your appraisal amount, protests are due by May 15 each year. You can file your own protest online or there are many companies that will file on your behalf for a portion of your tax savings. (Our brokerage recommends OwnWell.) I’m happy to take a look at your appraised value and provide guidance!
NOTE: Please do not confuse county appraisals with independent real estate appraisals. Protesting your tax appraisal amount will not negatively affect you if you plan to sell. In fact, it could help your sale. Also do not rely on your county tax appraisal to be an accurate representation of what your house will actually sell for. If you want a broker price opinion, you can request one here.
Your tax bill will be sent out in the fall, and it is due by January 31. If you have an escrow account attached to your mortgage, your mortgage servicer will pay your tax bill from the escrow account. If there is a shortage or an overage, they will alert you, and your future payments will go up or down accordingly. If there is a shortage, typically you can pay the shortage in one lump sum, or you can opt to have the shortage rolled into your payments for the next year. Every once in a while you’ll receive a check for an escrow overage, which is always a lovely surprise!
Property Tax Exemptions for Primary Residences
Is there a cap on property taxes in Texas? Sort of: There are various tax exemptions that can lower residents’ tax burden. They include:
Residence Homestead
Age 65 or Older or Disabled Persons Residence Homestead
Inherited Residence Homestead
Disabled Vets and Surviving Spouses of Disabled Veterans
And Surviving Spouses of First Responders Killed in the Line of Duty
After two years of residence, homestead exemptions cap the year-over-year increase in taxable value to no more than 10%. The county may still appraise the property higher, but it will only tax you on a 10% increase.
An additional perk to having a homestead exemption is that various taxing entities subtract thousands of dollars from your home value when calculating their specific taxes. For example: If the county appraises your primary residence at $500,000. With a homestead exemption, your local school district may tax you on only $400,000. Say the tax rate is $0.9966 per every $100. That is a tax savings of almost $1,000 per year just on that one portion of your overall taxes.
Other exemptions work in much the same way.
To see if you qualify for a homestead exemption or other type of exemption in Travis County, click here.
What should I know about taxes when buying a home in the Austin area?
A former seller’s homestead exemption cap will not rollover to a new buyer even if that new buyer files an exemption. The cap essentially resets when a property is sold.
NOTE: Do not confuse property taxes with federal taxes! There are some federal tax benefits to home ownership, for example you can usually deduct mortgage interest paid on your primary residence. In some cases, you might also be able to deduct your property taxes. Talk to your CPA about your specific situation.
During a sale, the seller is responsible for prorated taxes up through the date of sale, and they credit the buyer this amount at close. The buyer is then responsible for paying the entire tax bill by January 31 of the following year. Unless you close at the end of the year, you might not know what your exact tax bill will be. In that case, the title company estimates your taxes. If they are off, it’s up to the buyer and seller to work out the discrepancy amongst themselves.
Texas property taxes are confusing even for those of us who have lived here for decades! If you have questions, please reach out. Housing affordability is on every Austinite’s mind right now, and taxes are an important component of that topic. It’s very important to know how taxes will affect your living costs when buying a home, and for investors it’s important to understand how property taxes factor into your cash-flow and ROI calculations.
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