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The 411 On Property Tax Cuts

Tuesday, August 22, 2023   /   by Kathryn Jones

The 411 On Property Tax Cuts

Today we're talking about the potential property tax cuts on the horizon for our fellow Texans. This month, a new law has been approved, aiming to increase the homestead exemption to $100,000, decrease the tax rates for schools and implement a limit on property appraisals for both residential and commercial properties, along with several other accompanying measures.

Governor Greg Abbott signed the cut-creating legislation, ending months of negotiations. But before taking effect, Texas voters must decide on Nov. 7 whether to permit spending billions in taxpayer funds, primarily collected from the past two years, for the cuts. If likely approved due to prior support for tax cuts, changes would impact 2023 tax bills, due in January.

Here are the five key-parts to the tax-cuts package to know:

1. $100,000 Homestead Exemption
Roughly $5.6 billion is projected to be allocated in order to significantly increase the existing property tax exemption from $40,000 to over double that amount for Texan homeowners who use their primary residence as their place of residence. This exemption, known as the homestead exemption, permits homeowners to deduct a certain value from the assessed worth of their home before it becomes subject to taxation. To illustrate, under the present exemption, a homeowner with a $350,000 property is taxed based on a value of $310,000. However, with the newly approved homestead exemption for this year, the same property would only be taxed based on a value of $250,000.

2. School Tax Compression
Around $7.1 billion is set for Texas school districts, aiming to help them cut property taxes imposed on property owners. Termed "compression," this involves lowering school districts' maintenance and operations property tax rate by 10.7 cents per $100 property valuation. The M&O tax covers vital costs like teacher salaries and facility upkeep and forms the largest share of property tax bills for most owners.

3. Temporary 20% Appraisal Cap
The proposed law limits appraisals for commercial, mineral, and residential properties under $5 million (excluding those with homestead exemptions). Texas county appraisal districts couldn't raise taxable values by more than 20% annually for three years. The program would end in 2026, unless extended by lawmakers and voters.

4. Franchise Tax Exemptions

The legislation doesn't target property tax reduction but provides extra tax relief. It suggests doubling the revenue threshold for Texas' franchise tax, affecting larger in-state businesses. The current $1.24 million limit would rise to $2.47 million. Also, businesses under this new limit would be exempt from filing franchise tax reporting forms.

5. Elected Appraisal Officials

Currently, county appraisal districts have appointed roles that vary in size, often having about nine members. The new proposal changes this by adding three elected positions to each district's board through county-wide majority voting. These positions would hold four-year terms and are designed to improve appraisal decision accountability by linking decision-makers more directly with affected property owners.

Source: Texas Tribune

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If given the green light, these property tax cuts should go into effect automatically for property owners. This includes the changes to the franchise tax code, the 20% appraisal cap and the M&O tax rate compression. Most importantly, owner-occupied properties that already have a homestead exemption in place, would also see that benefit automatically increase from $40,000 to $100,000 with no action required.

If you have not established your homestead exemption, you will need to apply for this through your county’s appraisal district to get the benefits from these tax cuts. Here are the respective links for both Williamson County and Travis County appraisal district websites.

Wondering what these changes in property taxes mean for your home buying journey? Call our team today at (512) 888 - 9205 and let’s talk! You can afford more than you think and these changes are going to provide you with even more opportunity.