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Big Change To Homestead Exemption Law in 2022

In some corners of the state, Texas’ 87th legislative session may have been described as contentious, but two groups — REALTORS and homeowners — emerged from the session (and two extensions) not only unscathed, but with quite a few money-saving wins.

When preparing to report on and write about the new homestead exemption rule — an improved property tax reform and relief bill that passed through the Texas legislature by unanimous vote last August — it was pretty surprising to hear many homeowners say they were only marginally familiar with the law and new rule. Some Realtors we spoke to celebrated that victory, but were uncertain about an upcoming vote that is expected to drastically increase the exemption.

Put simply, the Texas homestead exemption is a tax break. Only primary homeowners qualify for the exemption and they must live on the property and have a driver’s license with the address they’re claiming the tax break on. Owners qualify for tax relief whether they live in a house, condominium, or even a mobile home — just as long as it’s their primary residence. An owner can even apply for an exemption on a home that sits on land someone else has the deed to. Investors and corporations do not qualify for the exemption.

The way the homestead exemption works is that public school districts provide a $25,000 exemption on owner-occupied residences in their districts. Owners see those savings on their annual tax bill. The amount owners save depends on the value of the home and they’re only required to apply for the exemption once. It automatically renews each year thereafter, until the owners sell the residence.

Here’s how owners file for the homestead exemption: A client purchases her house. An appraiser determines the value of the home and property. The assessment is calculated based on a variety of factors, such as location, age and condition of the home, how the home compares to other properties in the vicinity and their value. So if a home is valued at 300,000, for example, under the Texas homestead exemption, the owner is permitted to reduce the taxable value of the property by $25,000. Now, instead of paying taxes on a home with a taxable value of $300,000, their tax bill is calculated on a property valued at $275,000.

“It’s a big deal,” says Susan Horton, a broker at John Horton Realty, “because it significantly lowers your property taxes.” In August when we spoke with Jaime Lee, past director of advocacy communications at Texas Realtors, she said that real estate clients are potentially saving hundreds, if not thousands, of dollars a year.

The new rule passed last summer and just went into effect January 1, 2022. In previous years, when a buyer purchased a home, they couldn’t file for their exemption until the following January. That rule really stuck in the craw of a lot of Texans. One of the biggest benefits of living and working in Texas is that there’s no income tax. While it’s a great way to attract businesses and new jobs to the state, the funds for building new schools and hospitals and maintaining roads and infrastructure has to come from somewhere. When it comes to public school funding, homeowners are on the hook through their property taxes. 

Tax relief has been a longstanding issue for Texas homeowners, according to Senator Paul Bettencourt, the Houston representative who authored several tax relief bills. So a slew of state reps and the industry advocacy organization, Texas Realtors, got to work and fought for the exemption. Since the Texas legislature only meets every two years, homeowners had to be patient. In 2021, their patience finally paid off. Lawmakers unanimously voted to change when homeowners can apply for the homestead exemption. Anyone who purchases and lives in a primary residence can file for the exemption immediately after closing on their property. If the previous owner already filed an exemption that year, the new owner can wait until January to file, but they’ll still see the tax savings the year they closed on the home.

One thing that Realtors and their clients need to know about the homestead exemption is that it is free to apply for. It might cost a few dollars to get a new driver’s license, but the county appraiser will not ask homeowners to pay for a tax exemption application. The state has received some complaints that homeowners are receiving a bill for filling out an application. Industry professionals say it’s spam email or spam mail from agencies, or even lone actors, attempting to charge people to fill out their paperwork. Agents should warn clients of these and other possible scams.

So now is the time for Realtors to instruct new homeowners that they can file for their homestead exemption this year — not wait for next January — and remind clients and colleagues about the ballot proposal that will give voters the opportunity to increase the exemption from $25,000 to $40,000 on May 7, 2022.

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