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Texas Homestead Exemptions - What You Need to Know

If you own property in Texas, you are likely familiar with Homestead Exemptions. Learn about provisional updates made in 2022 and how to address them here.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

If you’re a homeowner or new homebuyer in Texas, then you’ve likely heard of homestead exemptions. This is a considerable tax break if your primary residence is located in the state of Texas. Keep reading to learn about the Texas homestead exemption, how much money it could save you, and other important information. We’ll also introduce potential changes to the rules in 2022 that you should know about, as well as special considerations if you wish to place your homestead into a Trust.

What is a Texas homestead exemption?

A Texas homestead exemption is a tax break for homeowners who qualify. The exemption allows homeowners to claim their primary residence as their homestead, thus allowing them to save on property taxes. It also provides them with certain protections from potential creditors. This exemption is a major benefit associated with buying and owning your house in Texas.

Texas residents also enjoy not having to pay any income taxes. (If you are reading this and live in any other state, this might be making you green with envy at the moment.) Instead, the Lone Star State relies heavily on residential property taxes as a revenue source to fund public projects, such as schools, libraries, construction, and more. Because Texas is so highly dependent on property tax revenue, the property tax rate is high. The average homeowner pays about one-third more than the national average. Note that a state property tax rate is not available. Property taxes are assessed at the local level using 100 percent of the property’s appraised value. 

Luckily, the homestead exemption provides some relief. Qualifying homeowners enjoy the residence homestead exemption. Certain qualifying taxpayers can also claim additional tax exemptions, such as military veterans, persons with disabilities, and homeowners who are over the age of 65.

How does the Texas homestead exemption work?

The way the Texas Homestead Exemption works is explained in the Texas State Code, Section 11.13: Residence Homestead

The code requires that the public school districts offer a $25,000 exemption on residence homesteads that are located within their respective districts. Here, a residence homestead is a primary residence; we will explain qualifications in detail shortly.

The code also provides that a homeowner is entitled to an exemption of up to 20 percent of their appraised property value. The individual is entitled to an exemption of at least $5,000 and no less. Further, counties must offer an additional, separate homestead exemption of $3,000 if the county collects flood-control or farm-to-market taxes from residents.

The school tax exemption is the most common type of homestead exemption, but local authorities can determine if a homeowner qualifies for additional exemptions, such as the ones mentioned above.

Here’s an example to help illustrate how the Texas homestead exemption works.

Let’s say that your primary residence is assigned a value of $300,000 by your local tax assessor. Based on the homestead exemption code outlined above, you are allowed to subtract $25,000 from $300,000 to determine the taxable value of your property. This means that your taxes will only be assessed at a property value of $275,000 instead of $300,000. As you might imagine, this can result in significant tax savings every year.

Additionally, you might be entitled to additional, separate exemptions that add up to tens of thousands of dollars. Because Texas property taxes are assessed at the local level, it is best to research the exemption rules and guidelines in the respective county in which your primary residence is located. The appraisal district section of your county tax website is a great place to start.

How much will I save with the Texas homestead exemption?

How much you end up saving with the Texas homestead exemption depends on several factors. The first factor is the value of your house, and what your local tax assessor appraises your home value at. Another factor includes your local government’s policy making decisions. It will set the exemption amounts and tax levels for its residents, so exemptions and tax levels will vary from city to city and county to county. Last but not least, your age matters. Once you reach the age of 65 or become disabled, your school taxes are frozen until you are no longer living in that home. Although your taxes won’t go away completely, they won’t increase as tax levels or home values rise.

Many homeowners can expect to take off at least $25,000 off of the home value they are required to report.

2022 changes to the Texas homestead exemption

If you buy a home in 2022, you can potentially claim the homestead exemption and save thousands of dollars on property taxes. This is a major change because prior to January 1, 2022, homestead exemptions could not be claimed until one year after the home was purchased.

Starting this year, new homeowners don’t have to wait for a year. They can file for the homestead exemption immediately after closing on their property. 

There was also a new provision that addresses qualifying Trusts for Texas homestead purposes. There are several reasons for which an individual would transfer their property into a Trust. A common reason would be to avoid Texas probate. However, it’s important to do so in a manner that wouldn’t jeopardize your qualification for the homestead exemption.

A Texas property transferred into a Trust can still qualify for the homestead exemption. However, the property must be placed into a qualifying Trust. From a tax perspective, a qualifying Trust must have terms that allow the Trustor (creator of the Trust) or beneficiary the right to use and occupy residential property as their primary residence. The deed transferring the property into the Trust or other type of binding agreement can also satisfy this requirement.

In 2022, there is some good news. There is a new provision that now makes a Trust & Will Trust a qualifying Trust for Texas homestead purposes. This allows estate planners to preserve this important exemption that can save them thousands of dollars on property taxes and remove their primary residence from the probate process.

Who qualifies for the general Texas homestead exemption? 

To qualify for the Texas general residence homestead exemption, you must satisfy three requirements:

  • You must own your home; partial ownership satisfies this requirement

  • This home must be your principal/primary residence

  • You must have a Texas driver’s license or other type of Texas-issued form of identification

If you satisfy these requirements and qualify for the general residence homestead exemption, you may also be eligible for additional exemptions with certain criteria:

  • Over 65: If you are over the age of 65, you can also qualify for the over 65 exemption. If you pass away and are over the age of 65, then your surviving spouse will be able to claim the exemption, although they must be 55 or older. 

  • Disability: Homeowners who have a disability that would qualify for Social Security Disability Insurance (SSDI), can qualify for the disability exemption. However, if you are over the age of 65 and have a disability, you can only claim one of the exemptions, not both.

  • Veteran: Veterans with a disability, spouses, survivors, and spouses and survivors of military personnel killed on active duty can claim the veteran exemption. The exemption amount depends on the percentage of the disability connected to service. 

When can I apply for the Texas homestead exemption? 

According to the new rule in 2022, you can apply for the Texas homestead exemption in the same year that you purchased your home. This means that you can file your application for the exemption at any time. 

If your application is put in the mail by April 30th, the exemption can be processed in time for your fall property tax bill. If you file after April 30th, then the exemption will be applied retroactively. This is applies up to one year after the tax delinquency date. If you file after this date, then the exemption will be applied in the following tax year.

After you qualify for the general residence exemption, you can apply for the over-65 or disabled person exemption at any time. The exemption is applied retroactively if you file within one year of turning 65 or becoming disabled.

Update Your Trust Today

The Texas homestead exemption is a major consideration for property owners in the Lone Star State. Residents of Texas enjoy not having to pay any income taxes, but of course, nothing is free. To offset this, public works are funded heavily by property tax proceeds. Thus, the Texas property tax rate is one of the highest in the nation. Luckily, if your primary residence is in Texas, there is some relief available. If you qualify, you can apply for the general residence homestead exemption. This exemption reduces the taxable value of your property, thus potentially saving you thousands of dollars in property taxes each year. There are also additional exemptions available in certain counties, as well as based on your age and whether you have a disability. Property taxes and exemptions are assessed at the local level, and not at the federal level. To find out how much in taxes you could be saving through the Texas homestead exemption, contact your local county office.

Further, we mentioned that you can transfer your home into a Trust and still enjoy the exemption. The key is to do so in such a way that doesn’t jeopardize your eligibility. Luckily, by working with Trust & Will, you won’t have to worry. There were some new provisions in the Texas tax code that renders a Trust & Will Trust compatible with Texas homestead exemption rules. That way, you can protect your property from the probate process and still enjoy these significant tax breaks. Find out how you can set up your Trust through Trust & Will today!

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