By LEAGUE Real Estate www.leaguere.com
They used to say the only things that are certain are death and taxes, but maybe now’s the time to cheat death because, at least in Texas, the housing taxes are making a change in the right direction. That’s right, the Texas legislature recently passed a Property Tax Relief Package, a $12.7 billion dollar package that is said to be one of the largest in Texas history! Signed by the Governor late this summer, the proposition appeared on the November 7th ballot and passed with 84% of voters approval. This tax relief package offers three major benefits to homeowners: a property tax rate compression, raises to the homestead tax exemption, and a pilot project that will limit appraisal increases for non-homestead properties.
What is tax rate compression?
A tax compression is simply any act by the government that is intended to lower the tax rate and reduce the amount taxpayers owe. In this case, the compression is created by our state government sending around $7.1 billion in state surplus money to public school districts, thereby decreasing the district’s need to extract taxes directly from district homeowners. So, in short, the government is offsetting your tax dollar decrease so that our schools will still be funded.
Why does this matter?
By offsetting the taxes levied by public schools, the bill requires districts to decrease their local tax rate. This decrease could save you $107 per $100,000 in valuation. In other words, the result should be a decrease in local school district taxes by 10.7 cents per $100. Fort Worth ISD, for example, adopted 2023-2024 a rate of only $1.0624 per $100. The rate has decreased by 57.16 per $100 of value since 2005.
How much is the raise in homestead tax exemption?
This is GREAT news for homeowners. In the state of texas, if you occupy the home you own (it is your primary residence), you currently enjoy a tax exemption of $40,000. This means that $40,000 is subtracted from the current valuation of your home BEFORE local public school district taxes are calculated. If the new bill is adopted in the November election, this homestead exemption will more than double to $100,000! This cost is offset by $5.6 billion in government surplus dollars (largely gained from sales taxes that soared over the past couple of years thanks to inflation). If this isn’t enough good news for you, property owners over 65 and property owners with disabilities (regardless of age) will enjoy an exemption of $110,000. That means, if your house is currently valued at $350,000, your local ISD can only tax $240,000 of that value.
What about appraisal increase limits?
In more good news for property owners, the Texas legislature agreed to pilot a three year program that would set new limits on increases in home valuations for non-primary residences. This program is known as the Circuit Breaker Tax Credit and would cap yearly appraisal increases at 20% for any non-homestead property (this means rental properties, investment properties, vacation homes, etc.) that are valued at under $5 million. The current cap for homestead properties is 10%. This program will be reevaluated in three years to determine if it ought to be extended.
Any other good news?
Actually, yes! If you own a small business, you may qualify for another tax relief project. Currently any business that earns less than $1.24 million annually is exempt from paying Texas state franchise tax. But one of the two bills that has been signed by the Governor would almost double this exemption to $2.47 million. The great news is that (if it’s approved), this bill could eliminate the state franchise tax for around 40% of small businesses!
But what does it mean for you?
We think you will find this simple calculator helpful. Input the correct information, including selecting the “homestead exemption” and the correct ISD and it will calculate your tax rate (https://taxonline.tarrantcounty.com/TaxPayer/TaxEstimator). For example, without the new homestead exemption, a person who lived in FWISD and owned a home valued at $400,000 would be expected to pay $9,831.48 in property taxes. With the new homestead exemption, the same homeowner will expect to pay $7,289.47 in property taxes. That is a savings of $2,542.01.