Texas Property Taxes
The State of Texas does not impose a common State Income Tax.
Instead, property taxes in Texas are the primary source of revenue for local governments, and these taxes fund services including schools, streets and roads, water systems, police and fire protection and many others.
Generally, real estate is taxed in proportion to accessed value, and the taxes applied to that property location.
Texas Homestead Exemption
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You may file between January 1 and April 30 for Homestead Exemption.
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There are a number of exemptions that can be applied to property taxes. One of the most common tax exemptions is referred to as homestead. It’s a reduction of tax value to the property based on the recognition that the property is a personal homestead.
What is Homestead?
To qualify for homestead exemptions, you must own and reside in your home on January 1 of the tax year. You may only apply for residence homestead exemptions on one property in a tax year.
In Texas, the homestead is the place of residence for a family or a single person, secure from forced sale by general creditors. The Texas Constitution gives each spouse, or single person, a possessory right in the homestead, which is lost only by death or abandonment, and cannot be compromised by waiver or voluntary act of the homestead owner.
The term exemption, as used in the state Constitution, stems from the concept that the homestead is exempt from forced sale by a homestead claimant’s general creditors. The homestead cannot ever be mortgaged unless the mortgage is for one of the following purposes:
To obtain money to finance the purchase of the homestead;
To obtain money to pay taxes due on the homestead;
To obtain money to improve the homestead (home improvement loan);
To obtain money to finance the purchase by one co-owner of another co-owner’s interest in the homestead, by either agreement or court order (such as in a divorce decree);
To obtain money to pay off a federal tax lien;
To obtain money from a home equity loan; or
To obtain money from a reverse mortgage.
Article 16. Section 50 of the Texas Constitution sets forth the protection provided to the homestead owner. Simply stated, a homeowner is protected from forced sale by his general creditors except for:
(1) the purchase money mortgage on the homestead;
(2) taxes due on the homestead;
(3) liens for work and materials used in improving the homestead provided
a. the contract to do the work was in writing and
b. signed by both husband and wife prior to the commencement of work.
c. filed for record in the county of the homestead (Unfortunately, many home improvement loan situations do not follow the requirements specified in (3)a, b & c above, resulting in the loss of financing ability)
(4) a loan to buy out a co-owner’s (or ex-spouse’s) interest in the homestead as part of a divorce decree or partition arrangement
(5) a loan to pay off and release federal tax lien filed for the tax debt of BOTH spouses (or taxes owed by the homestead owner if single)
(6) a home equity loan made pursuant to the requirements of the Texas Constitution
(7) a reverse mortgage made pursuant to the requirements of the Texas Constitution.
In order to prevent the legislative branch of the government from casually changing the homestead exemption, the exemption was incorporated into the State Constitution in 1845. Now only constitutional amendments may change the substance of the exemption.
The term “homestead exemption” also has another meaning with respect to local property taxes. Most taxing authorities permit a homeowner to file an application with their local appraisal district to “exempt” a portion of value from taxation for local property taxes. This can result in savings of as much as 20% of the annual tax bill. While the requirements to obtain this tax exemption are basically the same standards used to determine homestead status under the Texas Constitution, these are still two distinct and separate concepts and one does not necessarily determine the other.
That is, just because you have a property named as your homestead on the tax rolls, for tax exemption purposes, does not necessarily mean that the property would constitute your homestead under the Texas Constitution for protection from creditors. Tax homestead breaks are largely a matter of affidavits and filing procedures; Constitutional homestead protection is premised more on intent than anything else. Forms for exemptions can be found:
Not intended to be tax or legal advice. Consumers should consult with their tax and legal advisors.