Texas Property Tax Basics
Let's start with why Texas property taxes are so high and how they actually work.
The No Income Tax Trade-Off
Texas is one of only seven states with no state income tax. Great for your paycheck, but the state has to fund services somehow. Property taxes are the primary mechanism, which is why Texas has some of the highest property tax rates in the country—typically ranging from 2.0% to 2.8% of your home's assessed value.
How Property Tax Is Calculated
Your annual property tax is simple math:
Assessed Value × Tax Rate = Annual Property Tax
Assessed value is determined by your county appraisal district, NOT your purchase price (though they're often similar initially). Tax rate is actually multiple rates combined from different taxing entities. Exemptions (like homestead) reduce your assessed value before the calculation.
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Tax Rates by County
Property tax rates vary significantly across DFW's major counties. Here's what to expect:
Why Rates Vary So Much
Your total property tax rate is actually the sum of several overlapping taxing entities:
- County: 0.2-0.3% (funds county services, roads, courts)
- City: 0.4-0.7% (police, fire, parks, city services)
- School District: 1.0-1.5% (usually the LARGEST portion)
- Special Districts: 0.1-1.0%+ (MUDs, hospital districts, community college)
Two homes in the same county can have very different tax rates depending on which city, school district, and special districts they're in.
The Homestead Exemption: Your Biggest Tax Break
The homestead exemption is the most important tax benefit for Texas homeowners. If you do nothing else, file for this.
What it does: Reduces your home's taxable value by $100,000 for school district taxes. At a typical school tax rate of 1.3%, that's $1,300/year in savings.
Who qualifies: Any Texas resident who owns and occupies their home as their primary residence.
How to apply: File with your county appraisal district. Free to apply. Must be filed by April 30 for that tax year.
What it does: Additional $10,000+ reduction in taxable value, plus your school taxes are FROZEN at the amount you paid the year you qualified.
Who qualifies: Homeowners 65 or older (only one spouse needs to qualify).
What it does: Similar to over 65 exemption—additional reduction plus school tax freeze.
Who qualifies: Homeowners who meet Social Security disability requirements.
What it does: Exemption amount varies based on disability rating—from $5,000 to complete exemption for 100% disabled veterans.
Who qualifies: Veterans with service-connected disabilities (and surviving spouses in some cases).
Homestead exemption applications must be filed by April 30 of the tax year. New homeowners can file up to 2 years after purchase. File as soon as you close!
The 10% Cap: Protection Against Rapid Increases
Once you have a homestead exemption, your property's assessed value for taxes can only increase by a maximum of 10% per year—even if the market value increases more. This protection kicks in starting the second year you own the home.
Example: If your home's market value jumps 20% in one year (not uncommon in DFW), your taxable value can only increase 10%. The "excess" is capped and carries forward.
This is why longtime homeowners often pay much less in taxes than new buyers of similar homes—their assessed values have been capped for years.
Escrow: How Taxes Affect Your Monthly Payment
Most mortgage lenders require you to pay property taxes through an escrow account. Here's how it works:
What Is Escrow?
Instead of getting a $8,000+ tax bill once a year (and a $2,000+ insurance bill), your lender collects money each month and pays these bills on your behalf. It's forced savings to ensure you can always pay.
Breaking Down Your Monthly Payment
Example: $400K home at 7% interest, 30-year fixed, with 2.2% tax rate
Escrow Adjustments: Why Your Payment Can Change
Even with a fixed-rate mortgage, your monthly payment can change because of escrow adjustments:
- Property tax increases: If your assessed value or tax rate goes up, your escrow payment increases
- Insurance premium changes: Homeowners insurance costs affect escrow
- Escrow cushion requirements: Lenders can require up to 2 months cushion
Budget for your escrow payment to increase 3-5% annually, primarily due to property tax increases.
Protesting Your Property Taxes
Yes, you can fight your property tax assessment—and in Texas, many homeowners do. Here's how the process works:
When to Protest
You can protest if you believe:
- Your home's assessed value is higher than its market value
- Your home is valued higher than comparable properties
- The appraisal district made an error
- The property was incorrectly described
Property Tax Protest Timeline
Receive Your Notice (April-May)
The appraisal district mails "Notice of Appraised Value" with your proposed assessment.
File Protest (Deadline: May 15 or 30 days after notice)
File a written protest with your appraisal district. Most accept online filings. Free to file.
Informal Review (Optional)
Many districts offer informal meetings where you can often reach a settlement without a formal hearing.
Formal Hearing (If Needed)
Present your case to the Appraisal Review Board (ARB). Bring comparable sales data.
Receive Decision
The ARB issues a decision. You can appeal to district court if you disagree.
Should You Hire a Professional?
Property tax protest companies typically charge 40-50% of first-year savings. Whether it's worth it depends on:
- DIY makes sense if: Your home is similar to neighbors, you have time to gather comps, your property value is under $500K
- Professional makes sense if: Your property is unique, you lack time, or the potential savings are significant
Many first-time buyers successfully protest on their own—it's not as intimidating as it sounds.
Budget Planning: What to Expect Over Time
Property taxes aren't static—plan for them to increase every year.
Year 1: The Adjustment
Your first property tax bill may be based on the previous owner's assessment. The following year, your home will be reassessed at (or near) your purchase price. If you bought above the prior assessment, expect a significant jump.
Years 2+: Steady Increases
Even with the 10% homestead cap, budget for 3-5% annual increases due to:
- Assessed values catching up to market values
- Tax rate increases (school bonds, city projects)
- Special district taxes being added
The 5-Year Reality Check
A $733/month tax payment today could become $850-$900/month in 5 years with typical increases. Make sure your budget can absorb this growth.
| Year | Estimated Monthly Tax | Increase from Year 1 |
|---|---|---|
| Year 1 | $733 | — |
| Year 2 | $769 | +$36/month |
| Year 3 | $807 | +$74/month |
| Year 4 | $848 | +$115/month |
| Year 5 | $890 | +$157/month |
Based on 5% annual increase assumption on a $400K home at 2.2% rate
Your Property Tax Action Plan
Before You Buy
- Research the actual tax rate for any property you're considering (not just the county average)
- Look up whether the property is in a MUD or special district
- Calculate the FULL monthly payment including taxes
- Compare similar homes in different tax areas
After You Close
- File homestead exemption IMMEDIATELY (can do same day you close)
- Set a calendar reminder for protest deadline (May 15)
- Save your closing documents—you'll need comps for protests
- Track your assessed value notices when they arrive
Dallas County: dallascad.org | Collin County: collincad.org | Tarrant County: tad.org | Denton County: dentoncad.com