What is a Homestead Exemption?

When you buy a home in Texas, you may qualify for a homestead exemption. You can also qualify if you already own a home and never filed for one before. Now is a good time to see what this does and how it works as well as how you can apply for one.

What is a Homestead Exemption?

You must file your taxes every year. The government looks at how much you owe compared to how much you paid and will give you money back in the form of a refund if you paid too much. You can get your refund in the form of a check or have it deposited into your bank account. If you owe more than you paid, the Internal Revenue Service (IRS) will ask that you pay the balance due. Even if you can't afford to make the payment when it's due, there are payment plans available. Tax breaks are just one of the ways you can reduce the money you owe and/or get more money back.

Texas counties also charges anyone who owns property in the state with property tax. Counties in the Lone Star State charge a tax rate of 1.69%, which is slightly higher than the national average tax rate. If you own a home that is worth $200,000, you'll pay more than $3,000 a year in property taxes. Most homeowners in the state pay around $3,400 a year. All of the money that residents pay will go towards the public projects in the state.

While many states have a state income tax that they charge on all goods and services, Texas does not. The Lone Star State needs to make up for that lost revenue, which it does through property taxes. You should feel good about the money you pay because it helps pay for new libraries and the upkeep of old libraries as well as school expenses and public roads. The problem is that your property taxes can spiral out of control. Every time the value of your home rises, your property taxes will also increase.

A homestead exemption in Texas gives you a way to cut back on some of the money you owe. You must qualify for the exemption before you file and pay your property taxes. Texas has other programs designed for homeowners who are in the military or elderly. Find out how the exemption works and if you qualify.

How Does the Homestead Exemption Work in Texas?

Now that you have a better idea of what a homestead exemption means, you can take a look at how it works. This is a section found within the Texas State Tax Code that states school districts can give homeowners and property owners exemptions of up to $40,000 as long as the property is within that district. When you look at the exemption a little deeper though, you'll find that not everyone can use it.

To qualify, you must have a home within a public school district. A public school district refers to a governing body that is responsible for multiple schools. It can include consolidated districts and independent districts. Texas also requires that you claim the home as your primary residence. Do you live in a different part of the state and want to claim the exemption for your vacation home? You can't because it isn't your primary home. You also cannot claim the exemption for a rental property or a property that generates income such as the one you own and put on Airbnb.

The state tax code also allows school districts to offer another type of exemption. Homeowners can take up to 20% off the appraised value of their residences as long as they do not save more than $5,000. If you have a home with a higher value and qualify for a bigger reduction, you can only use the $5,000 maximum. Another exemption works on homes in specific counties. You can claim an exemption of up to $3,000 if your county charges a tax for farm-to-market operations or flood control basics.

Those exemptions are all separate from the homestead exemption. With the homestead exemption, you have the right to take up to $40,000 off the appraised market value of your home. If you have a home the county values at $300,000, you usually pay 1.69% of its value in your property taxes. This comes to $5,070 per year. With the homestead exemption, you deduct $40k from the value and then determine your property taxes. Taking the $40k off the appraised value drops the price to $260,000, which will reduce your property taxes to $4,394.

Keep in mind that the homestead exemption only applies to the appraised value of your property by the county. You can contact the tax assessor or auditor in your area to find out what your home is worth. Most counties also have an online search that lets you find this information. You just need to search for your address. The value of your home depends on factors such as the overall size of the lot and its square footage. If homes in your area suddenly start selling for higher amounts, the value of your home will also rise. While you can ask for a detailed appraisal, you can also use the homestead exemption to bring down your taxes.

Does Everyone Qualify for the Homestead Exemption in Texas?

No, not everyone who owns homes in Texas qualifies for this exemption. You must own the home and be the primary resident. If your spouse or parent is the primary name on the deed and/or mortgage, they need to apply for it. The property must also have some type of structure on it such as a single-family home or a manufactured home. As long as the property covers no more than 20 acres, you qualify for the homestead exemption. Make sure that you check with your county about any other requirements you must meet, too. If you jointly owned a home with another person and that person passed away, you can file for the exemption.

How to Apply

The tax appraiser for your county is the best place to start if you want to apply for a homestead exemption. You should check online first as this can save you a trip because many counties have websites where you can download the application. If your county does not offer an online version, contact them and ask for Property Tax Form 50-114, which they might call the Application of Residential Homestead Exemption. The form asks for your name and address as well as the appraised value of your property. It may also ask for a photocopy of your state ID or driver's license and other information.

Once you complete the application, mail it back to the appraiser. You should hear back within a few weeks, but it may take longer in some counties, especially early in the year. You have until the end of April to qualify for the homestead exemption. If you wait until January or February to apply, you might not get an answer until after the deadline passes. While it can take some work to file for the homestead exemption in Texas, it's an easy way to save money and cut back on your annual property taxes.