Texas Property Tax Reform Helps Homeowners and Businesses

Texas voters approved Proposition 4 on November 7, 2023, by an 83% margin, enacting one of the largest property tax relief packages in state history. The constitutional amendment delivered meaningful tax cuts for both homeowners and business owners across the state.

Homestead Exemption More Than Doubled

The centerpiece of Proposition 4 was a significant increase to the school district homestead exemption. The measure raised the exemption from $40,000 to $100,000 of a home's appraised value, applied retroactively to the 2023 tax year beginning January 1, 2023. Homeowners age 65 and older, along with those with disabilities, received an even higher exemption of $110,000.

This change means school districts tax homeowners on $100,000 less of their home's value than before. For a typical Texas homeowner, the reform translated to more than $2,500 in property tax savings over the first two years of the program, with larger savings for seniors and disabled homeowners.

New Protections for Small Businesses

For the first time, Proposition 4 extended appraisal cap protections to many non-homestead properties. Owners of commercial, mineral, and residential properties valued at less than $5 million received a 20% annual cap on taxable value growth. Previously, only homesteads had an appraisal cap (set at 10% per year), leaving small business owners, landlords, and owners of vacation properties exposed to unlimited year-over-year valuation increases.

This pilot program runs for three years and is scheduled to expire in 2026 unless state lawmakers and voters choose to extend it.

How the Relief Is Funded

Rather than shifting the tax burden elsewhere, the Texas Legislature used $12.7 billion from the state's record budget surplus to compress school district tax rates and reimburse districts for revenue lost to the larger exemption. This approach allowed lawmakers to deliver tax cuts without reducing funding for public schools.

What Homeowners Should Know

Most homeowners with an existing homestead exemption on file received the benefit automatically, reflected in their 2023 property tax bills issued in late 2023 and early 2024. Homeowners who had not previously filed for a homestead exemption needed to submit an application with their county appraisal district to claim the larger exemption.

The reform represents a continued effort by Texas lawmakers to address property tax growth in a state that relies heavily on property taxes due to having no state income tax.