How Texas Property Taxes Work When Buying a Home

Property taxes are a big part of owning a home in Texas, and they can be confusing.

Two homes with similar prices can have very different property taxes depending on where they're located, which school district they're in, whether there are additional taxing districts and what exemptions apply.

And here's something that's especially important when you're looking at homes:

The value shown by the county appraisal district for property-tax purposes does not tell us what someone will actually pay for that house.

Those are two different things.

So let's cover what you actually need to know without turning this into a property-tax class.

How Are Property Taxes Determined in Texas?

Texas does not have a state property tax. Property taxes are assessed locally, and several taxing entities may be involved.

The county appraisal district determines an appraised value for the property. Exemptions can reduce the amount of that value that is taxable, and the applicable local tax rates are then used to determine the property-tax bill.

The exact tax rate depends on the property.

That's why I look at the specific address when we're considering a home rather than relying on a general tax rate for Plano, Dallas, Frisco or another city.

The Tax Appraisal Is Not the Same as Market Value

This is one I want buyers to understand.

You may pull up a property on the county appraisal district's website and see an appraised value of $400,000 while the house is listed for $475,000.

That doesn't automatically mean the house is overpriced.

It also doesn't mean a $475,000 tax appraisal tells us buyers will pay $475,000 for the house.

When we're trying to determine what a home may be worth in the real estate market, I'm looking at things such as recent comparable sales, the home's condition, location, features and what's happening in that particular market.

The appraisal district's value is part of the property-tax system. Don't use that number by itself to decide what you should pay for a house.

Don't Assume the Seller's Current Tax Bill Will Be Yours

When you're looking at a home, the seller may have exemptions or other circumstances affecting the taxable value of that property.

That doesn't necessarily mean your future tax bill will look the same.

For example, a residence homestead exemption reduces the taxable value for qualifying homeowners, and additional exemptions may apply in some situations.

That's why property taxes need to be part of the conversation when you're determining whether a home's overall payment works for you.

Your lender can help estimate the taxes that should be included when calculating your payment.

 

What Happens to Property Taxes When You Close?

In Texas, property taxes are prorated between the buyer and seller at closing. Under the standard contract language, taxes for the current year are prorated through the closing date.

Because property taxes are generally paid later in the year, the title company calculates the seller's portion and credits that amount to you, the buyer, at closing. When the tax bill is due, the taxes can then be paid for the year.

If your lender is escrowing your property taxes, you'll also be putting money into your escrow account as part of your mortgage payment so the lender can pay future tax bills.

You don't need to calculate all of this yourself. That's what the title company and your lender are there for.

After Closing, Apply for Your Homestead Exemption

Once you've closed on a home that will be your primary residence, don't forget about your homestead exemption.

As soon as you've changed your driver's license to your new home address, apply for the residence homestead exemption with your county appraisal district.

A homestead exemption reduces the taxable value of a qualifying primary residence, which can reduce the amount you pay in property taxes. Texas currently provides a $140,000 residence homestead exemption for school district taxes, and some taxing entities offer additional exemptions.

And there's another Texas-specific point I want my buyers to know.

You are not required to tell the appraisal district what you paid for the house when you apply for your homestead exemption.

Texas is a non-disclosure state, and the current homestead exemption application does not require you to provide the purchase price. The appraisal district is responsible for determining its appraised value.

If you're asked for additional information beyond what's required for the exemption, understand what they're asking for and why before providing it.

Your Mortgage Payment May Include Property Taxes

If your lender escrows your property taxes, part of your monthly mortgage payment will go into an escrow account so the taxes can be paid when they're due.

That doesn't change how much tax you owe. It changes how the money is collected and paid.

And because property taxes can change, your escrow payment can change too.

This is another area where I want you talking with your lender. They can explain how the tax estimate affects your particular monthly payment and how your escrow account will work.

Frequently Asked Questions About Texas Property Taxes

Does the county's appraised value tell me what a house is worth?

No. The appraisal district's value is used in the property-tax process. When we're evaluating what a buyer may actually pay for a home, we look at the real estate market, comparable sales, condition, location and other factors.

Will I pay the same property taxes as the current owner?

Not necessarily. The current owner's exemptions and taxable value may be different from yours. Don't assume the seller's current tax bill will be your future tax bill.

Should I apply for a homestead exemption after I buy?

If the property qualifies as your primary residence, yes. Once you've changed your driver's license to the new address, apply with your county appraisal district. The exemption can reduce the taxable value of your qualifying residence.

Do I tell the appraisal district what I paid for my house?

The current Texas residence homestead exemption application does not require you to provide the purchase price.

Conclusion

Property taxes are part of the cost of owning a home, but you don't need to become a Texas property-tax expert before you buy one.

When we're looking at homes, I'll help you understand the property-tax information that matters to your buying decision and make sure we're looking at the specific property, not just making assumptions based on a city or the seller's current tax bill.

Your lender can help you understand how estimated taxes affect your monthly payment. The title company handles the tax proration at closing. And the county appraisal district handles the property's tax appraisal and exemptions.

Everybody has a job in this process. Mine is helping you buy the house and making sure you understand what's happening along the way.

If you're thinking about buying a home in Dallas-Fort Worth, contact Tommye McCeig. We can look at the house, the market and the numbers so you have the information you need to make a decision you feel good about.

Looking for a local lender recommendation? I can help with that too. I work with lenders who can walk you through the financing side and help you understand what the numbers look like for you.