One of the most valuable assets you might own is real property. Under circumstances where you actually live in the property you own, the law recognizes certain rights and protections not offered by other pieces of real property. For example, the Texas homestead exemption can be applied to prevent creditors from taking your home during a bankruptcy. Additionally, the Texas homestead exemption can save you considerable money on taxes. Find out everything you need to know about the Texas homestead exemption and how you can benefit from it.
What Is a Homestead in Texas?
A homestead in Texas refers to your primary residence. This is where you live most of the time. This is also referred to as a residence homestead.
Texas law defines a residence homestead as a structure or separately secured and occupied portion of a structure, not to exceed 20 acres, and improvements used in the residential occupancy of the structure if the land, structure, and improvements have identical ownership that meets all of the following criteria:
- Is owned by one or more individuals
- Is designed or adapted for human occupancy
- Is used as a residence
- Is occupied as the owner’s principal residence, surviving spouse who has a life estate, or by a trustor or beneficiary of the trust who qualifies for the homestead exemption.
This definition includes a manufactured home, as well as property that is owned directly or through a qualifying trust.
What Is the Texas Homestead Exemption
Residential property tax rates in Texas are approximately 33% higher than the national average. The state relies on these taxes to pay for schools, libraries, and other public projects. The homestead exemption provides some relief from these taxes for homeowners who qualify for it.
Texas homeowners can save on property taxes by using the homestead exemption. Additional tax savings may be available for certain homeowners, including those who are over the age of 65, disabled veterans, other types of veterans, and individuals with disabilities.
How the Texas Homestead Exemption Works
According to the Texas State Code, Section 11.13 Residence Homestead, school districts must offer a $40,000 residence homestead exemption for properties that are located within their appraisal districts. State law also states that homeowners are entitled to an exemption up to 20% of their appraised property value with a minimum of $5,000 of an exemption. If the primary residence is located in a county appraisal district that collects flood-control or farm-to-market taxes from residents, the county must provide an additional residential homestead exemption of $3,000.
Example of the Residential Homestead Exemption
A hypothetical scenario can help understand the residential homestead exemption and the value it may mean for a property owner.
John’s primary residence is valued at $400,000 by the local tax assessor. Current tax code allows John to receive an exemption of $40,000. Therefore, the taxable value of the property is $360,000 ($400,000 – $40,000). Therefore, his property taxes are based on the property’s adjusted value of $360,000. Let’s say John lives in Houston, where the tax rate is $0.533640 per $100 of assessed value. According to this, the amount of tax on the full appraised value would be $2,536.46. However, since property taxes are based on $375,000, the property tax would be $2,001.15, which is $535.31 less than the property taxes that would be due based on the full appraised value.
If John had any other property tax exemptions, the value would be adjusted even more. (See below). For example, say John qualifies for another $10,000 over 65 exemption and another $3,000 exemption from his taxing unit. Now, the adjusted property value on which taxes are based is $347,000, in which case the tax due would be $1,851.73, $648.73 less than the amount that would be due on the full appraised value.
How to Determine the Value of the Exemption?
There is no statewide tax exemption amount. Property taxes are assessed at the local level by using 100% of the appraised value of the property. The potential value of the homestead exemption depends on several factors, including the county and city where the property is located. You can learn about the exemption rules and guidelines for properties in your county appraisal district by viewing the county tax website.
The primary factor that affects the exemption amount is the property value, based on the appraised value that the local government assigns to the property. The local tax assessor sets exemption amounts and tax levels, so the amount of the exemption can vary drastically by city and county. Also, the homeowner may be entitled to additional exemptions that can increase this amount.
Eligibility Criteria for General Residence Homestead Exemptions
The Texas general residence homestead exemption is available to most homeowners. However, homeowners must be able to show they meet the following requirements:
- They own their home, partially or fully
- Their home is their primary residence
- They have a Texas driver’s license or state-issued identification
If a person entitled to the homestead exemption is not listed specifically on the property deed, such as an heir, the property owner must complete a homestead exemption application that contains the following information to demonstrate they meet all qualifying conditions:
- A completed affidavit that establishes the applicant’s ownership interest in the property
- A copy of the death certificate of the last property owner
- A copy of the most recent utility bill for the property
- A court declaration of the property ownership, if applicable
- A statement on the application form that the applicant is an heir property owner
- An affidavit from all other heir property owners who occupy the property that they authorize the submission of the application
There may be additional requirements, but the chief appraiser can waive them.
Additional Texas Homestead Exemptions
If the homeowner satisfies the requirements for the general residence homestead exemption, they may qualify for additional exemptions, such as:
- Over 65 exemption – Homeowners over the age of 65 can qualify for the over 65 exemption. If a homeowner passes away while over the age of 65, this exemption goes to the surviving spouse as long as the spouse is 55 or older. This gives the homeowner an exemption from taxation by a school district of $10,000 of the appraised value of the homestead.
- Disabled person exemption – Homeowners who have a disability that would qualify for Social Security Disability Insurance (SSDI) per Social Security Administration rules (SSA) can qualify for the disability exemption. This gives the homeowner an exemption from taxation by a school district of $10,000 of the appraised value of the homestead.
- Disabled veteran’s exemption – A disabled veteran who has been assigned a 100% disability compensation by Veterans Affairs due to a service-connected disability and a 100% disability rating or of individual unemployability can have an exemption from taxation of the entire appraised value of the homestead.
- Veteran exemption – Other members of the armed services and their dependents may be able to receive an exemption, including military spouses, survivors, survivors and spouses of members of the armed services killed on active duty. The amount of the exemption can vary.
- Charitable organization exemption – A charitable organization that improves real property for low-income housing can receive an exemption. The charitable organization must submit an application with the Texas Comptroller for recognition. The chief appraiser determines the market value of the property and records it in the appraisal records.
There may be additional exemptions based on the guidelines of various taxing units.
A person who is entitled to one exemption can only take one exemption. For example, if a person is over 65 and disabled, they can only claim one of these exemptions.
When Can I Claim the Texas Homestead Exemption?
The tax code changed effective for the 2022 tax year, which allowed new property owners to claim the Texas homestead exemption the same year the home was purchased. Prior to this change, property owners had to wait one year before claiming the exemption. The property owners can file for the homestead exemption immediately after they close on the property. Taxpayers can then apply the homestead exemption each year after that.
Taxpayers can claim their additional Texas property tax exemptions after applying for the general residence exemption.
Texas Homestead Exemptions and Trusts
Importantly, the Texas homestead exemption can still be claimed even if a trust holds the asset as long as it is considered a qualifying trust, which means it allows the grantor or beneficiary to use or occupy the residential property as their primary residence.
Takeaway
The Texas homestead exemption can help you save money on your property tax bill, but there are complex rules you must understand when claiming your exemption.