Property taxes in Texas are local taxes that homeowners are required to pay on the value of their properties.
Texas is known for having the highest property tax rates in the United States, and the reasons for this are diverse but are primarily rooted in how the local government chooses to raise funds in the state.
Understanding the reasons for high property taxes
We’re not sure that understanding the very good reasons for the high property taxes will remove the shock of a hefty property tax bill, but maybe it can soften it somewhat.
After all, living in the Lone Star State has many benefits, and these social and public benefits have to be funded somehow.
In the State of Texas, the local government has chosen to raise money differently from other states. Taxes are collected through property taxes, sales taxes, and business taxes, as opposed to personal income taxes. Basically, you are taxed for the privilege of living and doing business in this thriving state. Let’s see how this works.
No state income tax
Texans receive great relief from paying personal state income tax. For example, Californians pay the highest state tax in the country where the marginal tax rate can reach up to 13.3% for income over $1m.
Part of the reason there are high property taxes is this benefit. So, whilst this sounds great at the onset, it soon becomes apparent that the more assets you own (property and business) the bigger your tax liability.
Local government funding
The local governments receive significant funding from property tax revenue. In April 2024, the Texas Tribune examined whether the efforts of Republicans over the last 5 years to lower property taxes had paid off.
They reported that many homeowners had been given property tax relief amounting to $12.7 billion, meaning they paid lower property taxes in 2022/2023.
Quoting from this same article, “A McAllen homeowner who bought her home in 2000 saw the market value of that home nearly double between 2018 and 2023. But the amount she paid in school district property taxes dropped to almost zero in 2023, resulting in a nearly 28% decrease in her overall tax bill from the year before. She paid roughly 21% less in property taxes last year than she did in 2018.”
This seems like a great win for taxpayers, however, there are very important projects that only exist because of property taxes and so there is only so much reduction on property tax bills that can be allowed.
Property valuation and tax rates
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Property valuation and the subsequent tax rates showed a steady increase since the 2010s as the state’s economy boomed and newcomers flocked to Texas. Property values, a prominent factor in calculating annual property tax, skyrocketed as demand increased.
Rising property values meant higher property tax rates and so it continued to the current day where Texans pay the highest property taxes in the U.S. Property tax reform became a big point of discussion and contention with lawmakers, as they sought to balance funding with tax relief for property owners.
Increased demand for public services
As the population of Texas has expanded so has the demand for public services such as education and workforce development, healthcare services, infrastructure and energy, and technological innovation.
Education is funded by school property taxes which make up a large portion of the annual property tax bill across the state. To manage this, Texas lawmakers allow school district tax rates to be set by allocated school districts. This ensures that each student in the district receives a minimum level of funding.
Recent legislative efforts have aimed to relieve this burden somewhat. For example, significant measures have included increasing the homestead exemption for school district taxes—raising it from $25,000 to $40,000 and then proposing to increase it to $100,000. This exemption reduces the portion of a home’s value that is subject to taxation, directly lowering tax bills for homeowners.
The ‘Robin Hood’ tax distribution system
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Texas has employed a system known as "Robin Hood" which redistributes property tax from wealthier districts to poorer ones to ensure more equitable funding across school districts. However, this system has been contentious and often criticized for not adequately addressing the needs of growing urban and suburban districts that face rising educational costs without corresponding increases in per-student funding.
Impact of the appraisal process
Frequent valuations and reassessments by the appraisal review board can quickly increase taxable values, and in a booming real estate market things can get out of control. For these reasons, Texas property owners have been pushing back and supporting efforts to decrease the property tax burden.
How the property tax rate fluctuates among counties
There is a wide variability of the property tax rates across counties in Texas. For instance, the tax rate can be as high as 2.23% of the property value in King County, and as low as 0.56% in Borden.
Harris County, which contains Houston and surrounding neighborhoods has the highest property tax rates of not only Texas but the entire country.
The average homeowner in Dallas will pay $4,306 in annual property taxes, and in Ford Bend County the average is $6,337 due to the high property values.
The Texas Comptroller, in line with Tax Code Section 26.16 requires each county to maintain an internet website. The county assessor-collector for each county must post on the internet website certain tax rate information for each taxing unit in the county.
Can I avoid paying high property taxes in Texas?
Avoid? No.
But there are ways of managing your property tax bill. There are a number of relief programs, homestead exemptions, and a cap on the percentage increase you will pay from year to year, on your property (currently no more than 10%).
If you believe your property assessment is too high, you have the option of appealing the assessment. This involves comparing your property’s assessed value with similar properties that have lower assessed values. Successfully arguing that your property is overvalued can significantly reduce your tax bill.
Will property taxes in Texas ever go down?
This is a question we hear all the time from frustrated taxpayers. We would like to say yes, but that would require us to be certain of a number of factors that are outside of our control - and yours.
Texas is booming and its attractiveness for business owners, investors, start-ups, and families looking for a better quality of life, is not likely to change in the near future. As demand for housing continues, prices are likely to keep rising and with it the property tax rate.
However, as previously mentioned in this discussion, lawmakers are making it a priority to table legislative reform in Texas before property taxes become untenable. Several counties paid much less in property tax compared with previous years and hopefully, that trend will continue.
Need help with your property taxes?
The murky waters of managing your annual property tax bill can be worrisome for individual taxpayers and that’s why Hall Accounting Company offers tax planning for individuals as part of our services to local taxpayers. We will help you navigate through the following property tax issues:
Tax relief laws that apply to individuals, disabled citizens, and veterans.
Help you understand how your property is valued and how the school district taxes apply to your property.
Help you apply for homestead exemptions before state deadlines.
Assist you in managing payment deadlines and payment extensions.
Guide you through tax planning strategies so that you can confidently meet your tax obligations without stress.
Advise you on whether you have grounds for a property assessment appeal.
Advise you on the tax implications of buying a new property.
Keep up with changes to property tax laws so you don’t have to. We will keep you informed of important developments that affect your taxes.
Don’t allow property taxes to become a burden you can’t manage. Schedule a FREE initial consultation with Hall Accounting Company and let’s sort out how you can meet your tax obligations.
Further reading: When is property tax due in Texas?