The homestead exemption 10% cap is an important safeguard for Texas homeowners, limiting how much the assessed value of a primary residence can increase from year to year, regardless of market value fluctuations. This cap is designed to protect homeowners from dramatic property tax increases due to rapidly rising home values.
For properties without a homestead exemption, the assessed value is instead subject to the 20% circuit breaker, which caps the annual increase for non-homestead properties valued at $5 million or less. Learn more about the 20% circuit breaker and how it benefits non-homestead property owners [link to article].
Here’s an explanation of how this cap works and the legal background behind it.
Background on the Homestead Exemption 10% Cap
The 10% cap was introduced as part of property tax reforms in Texas to provide relief for homeowners. The cap applies to properties with a homestead exemption, ensuring that the taxable value of a primary residence cannot increase by more than 10% annually, even if the market value increases significantly.
This provision is codified in the Texas Property Tax Code, Section 23.23, and has been instrumental in stabilizing property taxes for many homeowners since its implementation.
How the 10% Cap Works
The homestead exemption 10% cap limits annual increases to the assessed value of your property, not the market value. Here’s how it works:
- Market Value vs. Assessed Value
- Market Value: The appraisal district’s estimate of what your home would sell for on the open market as of January 1.
- Assessed Value: The value used to calculate your property taxes, which takes into account exemptions and the 10% cap.
- Application of the 10% Cap
- The assessed value of your home cannot increase by more than 10% from the previous year, plus the value of any new improvements (e.g., additions, major renovations).
- For example:
- In Year 1, your home’s assessed value is $300,000.
- In Year 2, the market value increases to $350,000.
- With the 10% cap, the maximum assessed value in Year 2 would be $330,000.
- When the Cap Applies
- The cap only applies to properties with a homestead exemption in place.
- It begins the year after you qualify for and receive the homestead exemption.
Exceptions to the 10% Cap
While the cap offers significant protection, there are exceptions:
- New Improvements: Additions or significant upgrades (e.g., building a new room or pool) are not subject to the cap and will be added to the taxable value.
- Ownership Changes: If the property is sold or ownership changes, the assessed value resets to the market value for the new owner, and the cap no longer applies.
Why the 10% Cap Is Important
The 10% cap provides homeowners with:
- Tax Stability: Preventing steep increases in property taxes despite rising market values.
- Predictability: Allowing homeowners to budget more effectively for annual property taxes.
- Relief in High-Growth Areas: Protecting homeowners in areas with rapidly appreciating property values, such as major Texas cities.
How to Maximize the Benefits of the 10% Cap
To take advantage of the homestead exemption and the 10% cap:
- Apply for the Homestead Exemption: File with your local appraisal district by April 30 if you haven’t already.
- Maintain Your Exemption: Ensure the exemption is active each year to keep the cap in place.
- Protest Overvaluations: If the market value of your property is inflated, file a property tax protest to ensure a fair assessed value within the cap.
Simplify Your Property Taxes with Slash-Tax
Navigating the complexities of property taxes can be challenging. Slash-Tax can help you manage your homestead exemption and ensure your property is assessed fairly. Our team specializes in protesting overvaluations and minimizing your tax bill while protecting your rights as a homeowner.
Take Control of Your Property Taxes Today
The homestead exemption 10% cap is a powerful tool to protect your finances. Let Slash-Tax help you maximize its benefits and achieve significant property tax savings. Sign up today and start saving!