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How does the 10% Homestead Cap Value Work in Texas?

April 15, 2023

In Texas, the 10% homestead cap is a limit on the amount that taxable value can increase for a primary residence in any one year. The homestead cap limits the increase in the taxable value of a home to 10% of the previous year's market or capped value, whichever is less.

Here's an example to illustrate how it works: Let's say that in 2022, your home was appraised at $300,000. In 2023, the most your home's taxable (also called “assessed” or “capped”) value can increase is 10% of that amount, which is $30,000.  So, in 2023, your home's taxable value can be no more than $330,000. The following year it can increase another 10% to $363,000. There is no limit on the market value to which your home can increase.  

Your home’s capped value will never exceed your home’s market value. Therefore, it is important to contest your market value each year since that sets an upper limit on your taxable (or capped) value. Those who ignore protesting because their current year taxable value is lower than their market value will eventually pay a higher property tax than those who successfully control their market value by protesting annually. Property Tax Protest protests for its clients annually regardless of market vs. capped value. If the resulting reduced market value is still above the property’s capped value then the fee due to Property Tax Protest is discounted by half to 0.5% of the market value reduction in recognition that the benefit of the lower market value may be deferred to a future year.  Here’s how that works:

For example, if the Proposed Market Value is $525,000 and PTP obtains a Reduced Market Value of $475,000, then the fee would be $500, being 1.0% of the Reduction.    
However, if Owner’s Assessed (or Homestead Capped) Value is less than the value to which PTP has reduced its Market Value then the fee shall be reduced by half to 0.5% of the Reduction.  For example, if the Proposed Market Value is $525,000 and PTP obtains a Reduced Market Value of $475,000 but the Assessed (or Homestead Capped) value is less than $475,000, then the fee would be $250, being 0.5% of the Reduction.

It's important to note that the homestead cap only applies to a homeowner's primary residence, which means that investment properties and vacation homes are not eligible for the exemption.

Additionally, the homestead cap does not limit the total amount of property tax a homeowner must pay. If the tax rate increases, the amount of property tax owed can still increase, even if the taxable value of the home remains the same.

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