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How Property Taxes are Calculated

If you are confused about how your property taxes are calculated, we will break it down with information and facts at your disposal.

If you’ve been paying property taxes in Texas for a while, it might not come as a surprise that Texans pay some of the highest property taxes in the country. The state’s effective real estate tax rate is 1.86 percent, the sixth highest in the United States. Keep in mind that this is despite the fact that Texas does not collect property taxes at the state level; instead, property taxes stand as the chief revenue source for local government and other local entities. In total, about 3,900 local entities including city governments, county governments and school districts collect property taxes in the state.

Unfortunately, Texas’ property tax system can be unclear and difficult to understand for many Texas property owners. So if you’re feeling a bit confused when you open your property tax bill, here’s what you need to know about how the property tax system works in Texas.

How are Property Taxes Calculated in Texas?

The process for assessing each Texas’ property owners’ tax bill and collecting any property taxes that are due is split up into four stages throughout the year:

  1. Both homes and commercial properties are appraised: Every county has its own appraisal district, lead by a chief appraiser. Each year, your county’s appraisal district calculates an estimate of what your property was worth as of January 1st of that year. Whether or not a property is subject to property taxes and for how much is based on what the property is used for, who owns it and what the overall market conditions are.If you are looking to take advantage of any tax exemptions (can vary by county) or other tax relief avenues, it’s the appraisal district that will process these requests. You can save a significant amount on your tax bill by applying for any exemption that you may be eligible for. Common tax exemptions include the homestead exemption (which exempts $25,000 from taxation for any primary residence) and exemptions of $10,000 for those over 65 or disabled.
  2. Homeowners and commercial property owners have the chance to protest their property’s appraised value: If you think that your property was appraised too high (artificially boosting your tax bill) or you were denied an exemption you think you should qualify for, you are given a chance to appeal. Every county has an appraisal review board, made up of ordinary citizens who hear disputes. This appeals process occurs around May 15th.
  3. The elected officials leading each “taxing unit” set their property tax rates: In short, there’s a wide range of governmental agencies that can collect property taxes in Texas. All taxable real estate is subject to county and school board taxes. However, depending on where your property is located, you may also be taxed by your city, your hospital district, your road district and more. Each of these “taxing units” figures out their tax rates in August or September.
  4. Property taxes are collected: Property tax bills go out around October 1st, and taxes are typically due around January 31st of the next year. Interest and penalties start accruing on February 1st, with tax collectors also able to begin taking legal action to collect.

What are Property Taxes Used For?

One of the biggest sources of confusion for many Texans is understanding why their tax rate is what it is and where their property taxes go. Effective tax rates can vary widely across the state, ranging from just 0.36 percent in Borden County to as much as 2.24 percent in Fort Bend County. Why the huge variance? Essentially, each county and other governmental agencies are able to set their own tax rates based on their revenue needs. Property taxes are used to pay for everything from road construction to local government salaries to park maintenance; in particular, public school districts are administered almost entirely with property tax funds. This means that every county–and even different cities within the same county, or different districts within the same city–can have a different tax rate.

Contact Sombrero Capital if you are in need of a property loan lender to help you navigate the intricacies of property taxes.

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