Property Tax in Texas: Everything You Must Know As a Landlord or Property Manager

If you're looking for a place with diverse culture and traditions, delicious cuisine, strong hospitality, and beautiful cities, you can find many opportunities in Texas.

Additionally, the Lone Star State is attractive to natives and immigrants alike, as it offers ample job opportunities, a relatively low cost of living, a thriving housing market, and large metropolitan areas to live in.

However, those aren't the only things you should consider if you plan to move to Texas or buy a property in this state. Wherever you live, it's important to know how the local property tax system works in order to maximize your investment and avoid financial issues.

If you have an effective property tax plan, you can anticipate payments to meet your obligations and avoid additional fees, save money, and reach your financial goals.

This guide will answer many of the property tax questions you may have in mind, from the amounts you must pay each year to deadlines, possible penalties, and exemptions.

Read on to find valuable information about your property tax in Texas!

Understanding Different Types of Property Tax Bills in Texas

Like other states, Texas uses property taxes to obtain the money that local governments need for services and infrastructure projects, such as the following:

• Streets
• Schools
• Police departments
• Fire protection departments
• And more!

Although Texas laws establish the process that local officials must follow to determine a property's value and set or collect taxes, there is no statewide rate.

In simple terms, Texas doesn't have a state property tax but rather allows local governments to set rates and collect taxes. The state doesn't even handle disputes between individuals and taxing entities.

Also, Texas doesn't have many types of property taxes, but determines the values ​​based on the following categories:

Business Personal Property Tax

All assets used for business purposes are subject to assessment in Texas, including machinery and equipment, office furniture, tools, molds, farm and vineyard supplies, and more.

Real Property Tax

This category includes land and all improvements on that land, such as buildings and other structures.

How Many Times Do You Pay Property Tax a Year in Texas?

In Texas, tax collections begin around October 1. However, property owners can pay taxes until January 31 of the following year.

The rules change slightly if the tax bill is mailed after January 10. In that case, the delinquency date is the first day of the following month, giving property owners at least 21 days to pay taxes on time.

However, most Texas property owners pay taxes before the end of the year to deduct these payments from their federal income taxes.

Also, some people choose the split-payment option to meet their tax obligations. These taxpayers should pay the first half of the required tax amount before December 1, and the second half before July 1 of the following year.

Consequences of Late Payments

Property owners must pay taxes on time to avoid penalties, additional charges, and other consequences under the Texas Property Tax Code.

The longer you take to pay delinquent property taxes, the more expensive it becomes. Under Texas laws, local government officials may apply penalties and interest charges to taxes due.

In the worst-case scenario, your property can be seized or foreclosed if you miss the deadline and don't pay your taxes on time.

Let's go over each possible consequence:

Penalty and Interest Charge Accrue

Penalty charges depend on how long taxpayers let delinquent property taxes go unpaid. However, they can be as high as 12%.

Interest is charged at a rate of 1% per month with no maximum. In addition, private attorneys working for taxing units can add up to 20% more to penalty charges.

Some tax collectors help taxpayers get up to date with their taxes by allowing them to pay the amount due in installments for up to 3 months. However, they aren't legally required to offer this option.

Taxpayers Can Be Sued

Tax collectors are also authorized to take property owners to court if they are delinquent in paying their taxes. All court-related costs will be added to your delinquent tax bill in this case.

In addition, it's important to know that taxpayers are responsible for all taxes for the year due on taxable properties they own on January 1.

Even if the property is sold or transferred, individuals who own it are liable for taxes and can be sued if they don't pay them on time.

Properties May be Sold

In Texas, each taxing unit holds a lien on each of the individuals' taxable properties.

After January 1 of each year, a tax lien is automatically attached to the property. Local governments use liens to ensure all taxes are paid.

Additionally, courts can use this lien to foreclose and seize properties even if taxpayers didn't own the property on January 1. After this process, the property is auctioned. The proceeds are used to pay the past-due tax amount.

How to Pay a Property Tax Bill in Texas

If you need more information about local payment options, you should contact the tax collection office. However, these usually include the following:

Property Tax Deferrals

Property owners can defer homestead taxes when the home's appraised value plus new improvements exceeds 105% from the preceding tax year.

If you choose this method and are eligible, you should file a deferral application with the local appraisal district before your taxes become delinquent.

In addition, tax amounts are based on 105% of the home's value.

Installment Payments

Some individuals can also pay property taxes in installments.

If they qualify for homestead exemption because they're disabled or 65 or older, they can pay taxes in four installments.

This payment option is also available to partially disabled veterans and their families if their homes have been donated by charitable organizations.

These are the payment dates without penalties or interest:

• Before February 1
• Before April 1
• Before June 1
• Before August 1

However, other installment deadlines may apply if the delinquency date isn't February 1.

Other Payment Options

In addition, you can ask for information about locally available payment options, which may include the following:

• Discounts for early payments
• Split payments, allowing property owners to pay half of the taxes on November 30 and the remainder by June 30
• Partial tax payments
• Escrow agreements for special year-round accounts
• Work contracts, in lieu of paying taxes

How Much is Property Tax in Texas?

As mentioned, Texas doesn't have a state property tax rate. Instead, it allows local governments to set and collect taxes according to the amount of money they'll use to provide local services.

However, these are the common phases property owners go through during this process:

Appraisal

An appraisal district chaired by a board of directors appointed by member taxing units serves each Texas county to determine the value of all taxable property.

Before the process officially begins, the appraisal district compiles a list of all taxable properties and determines their value within the county boundaries. These entities must reappraise each property at least once every three years.

Most taxable property should be appraised according to market value as of January 1. Appraisal districts may use one of the following approaches for this task:

• Market Data (Sales) Comparison Approach, which is based on sales prices of similar properties
• Income Approach, which is based on income and expense data to determine the present worth of future benefits
• Cost Approach, which is based on how much it would cost to replace the building with one of equal quality and is used for properties with poor sales and income data
• Mass Appraisal, which is based on the property's size, usage, construction type, and other key elements to calculate the value of a large number of properties

After that, property owners should receive proper notice of the appraisal and a reasonable estimate of the amount of taxes that will be imposed on their properties.

Assessment

Appraisal records must be approved by the Appraisal Review Board (ARB). After that, each taxing unit receives a certified appraisal roll with all property values.

Each taxing unit should decide the services it'll provide in the coming year to determine how much money it'll need for that, preparing a budget to cover these expenses.

Determining the Tax Rate

During this process, the chief appraiser estimates the taxable value of properties within the taxing unit's jurisdiction. This will help these government bodies determine how much tax revenue they need to fund their budgets and what tax rate can produce that amount.

Cities, counties, and school districts are required to hold a public hearing on the proposed budget, publicizing the date, time, and location. Also, it should be available for inspection.

If the city budget requires raising more revenue from local property taxes than in previous years, a separate vote may be necessary. The same is true for the adoption of a county budget.

How is Property Tax Calculated in Texas?

All taxpayers should understand how tax amounts are calculated and how government spending can affect the size of their tax bills.

This is what often happens in Texas:

Early in August, taxing units start calculating and publishing no-new-revenue (NNR) tax rates and voter-approval tax rates (VATR). Under certain circumstances, school districts may adopt a tax rate even before a budget.

The NNR is the tax rate that local government bodies need to generate around the same amount that they received from property taxes the prior year on properties taxed in both years.

There's an inverse relationship between the NNR rate and property values. If one goes up, the other goes down, and vice versa.

The VATR will help cities, counties, and special purpose districts collect the same amount of tax levied in the previous year for day-to-day operations. This amount must also include an additional 3.5% increase to cover operating expenses and debts in the coming year.

After that, local government units should publish their proposed tax rates and a notice of hearing in a local newspaper or send it to each taxpayer via mail 30 days after receiving the appraisal roll or on September 1.

This public hearing allows taxpayers to share their opinions on proposed tax rates. If the governing body doesn't vote on the proposed tax rate, it's required to announce another date, place, and time for the tax rate's adoption.

Taxpayers can ask for an injunction from the district court to stop tax collections temporarily if they believe the taxing unit isn't complying with tax rate adoption laws.

Taxing units, except school districts and water districts, should hold an election to approve a tax rate in the following scenarios:

• The rate adopted by a special taxing unit or a city with a population of 30,000 or more exceeds the VATR
• A taxing unit, excluding special taxing units, adopts a rate that exceeds the greater of the VART or de minimis rate

Taxpayers can also request an election, but only in certain circumstances, such as the following:

• When the de minimis rate of the taxing unit is higher than the VATR. This doesn't apply to special purpose districts, school districts, or cities of 30,000 people or more.
• When a taxing unit adopts a rate that is less than or equal to the de minimis rate and higher than the VATR calculated under the 3.5% or 8% formula.

If the petition is valid, the governing body must hold the election. The tax rate must be reduced to the VATR immediately if most participants vote in favor of a reduction.

How Can I Lower My Property Taxes in Texas?

Property owners can lower their property taxes by implementing some of the following legitimate methods.

Appeals

In Texas, property owners can file objections against their property value, exemptions, and special appraisal by requesting a hearing with the ARB.

Overall, a property owner can protest the following:

• The property's value
• Denial of exemptions
• Unequal appraisal
• Denial or change or special appraisal
• Failure to provide notice
• Denial or modification of a temporary disaster exemption or a damage assessment rating
• Errors in appraisal record
• Other adverse action committed by the appraisal district, the chief appraiser, or ARB

Exemptions

Texas also offers several tax exemptions for eligible property owners, which can help them lower their tax bills. These are:

• Residence Homestead Exemptions
• General Residence Homestead
• Persons Aged 65 or Older or Disabled
• Disabled Veteran or Survivor
• Tax Ceiling (Freeze)
• Agricultural Appraisal, including Open-Space Land Appraisal, Open-Space Land Inside a City or Town, Change of Land Use
• Partial Exemptions
• Total exemptions
• Temporary Exemption Property Damaged by Disaster

Important Propositions for Real Estate Investors in Texas

Voter-approved propositions have a significant impact on property taxes. In Texas, there are two.

Proposition 1

A constitutional amendment makes homeowners who are disabled or over the age of 65 eligible to limit or freeze school district property taxes. However, a 2019 legislation was passed to lower school district tax rates to offset rising property values.

This legislation didn't take elderly and disabled property owners into account since their taxes were already frozen.

If Proposition 1 is passed, these homeowners could qualify for additional reductions, lowering their taxes without removing the property tax cap.

Proposition 2

Currently, some homeowners can subtract $25,000 from their property's value before school tax rates are levied. However, Proposition 2 will increase that deduction to $40,000.

Conclusion

Texas has a unique property tax system. As a homeowner, property manager, or real estate investor, you should understand how it works to avoid missing deadlines, find the best way to lower your annual expenses, and protect your financial position.

Luckily, this guide contains everything you need to know about property taxes in Texas!