After the Sale – an Owner’s Manual

Texas Property Taxes – "Huh?"

Practically nothing is more potentially confusing than property taxes in Texas. Relief has come this year, but you still need to understand how they work.

Unlike California (where spiraling property values practically made necessary Prop 13), Texas property taxes are not pegged to the purchase price you pay. Instead, the annual property taxes are calculated based on the rate of the taxing jurisdictions in which your property falls (usually the school district, the city, the community college, and a utility district).

Though the rates vary (1.8% in unincorporated Travis County to 2.5% in Wells Branch and Tanglewood due to MUDs and imputed HOAs), one can usually assume a 2.1% tax rate in Central Texas and be close to the actual value.

Because sale prices are still technically private information in Texas, the individual counties must make an educated guess as to what each area´s property values might be. That´s right, guess.

The good news is that the districts usually guess lower than the actual market value of the property, often about 70% to 80% of actual market value.

The bad news is that if they guess higher than actual market value, it is your (or your representative´s) responsibility to dispute the appraised value, which is subject to re-appraisal every single calendar year.

In May of each year, the county starts sending "Notice of Appraised Value" for the year in which they inform each property owner what they have assessed the property´s value. The owner then has approximately 45 days to accept or dispute this value. Disputing the value is as simple as filling out the back of the form and mailing it into the county.

If the property has been purchased in the past 24 months for less money than the appraised value, the dispute is as simple as mailing the form back with a photocopy of the closing statement showing the price paid at sale.

If the purchase was made prior to 24 months, it is still often worth hiring a company to dispute the tax appraisal, and most property managers partner with a firm who will perform this service for their clients.

Note that most investors escrow their tax and insurance payments and they´re handled by the mortgage company servicers. We recommend keeping a close eye on the monthly mortgage statements, however, because some servicers overpay or underpay these bills and this can cause a big headache for investors. See below section on maintaining proper data with service providers.

When working with buyers, we generally assume, conservatively, that taxes will be about 2.1% of 80% of the market value of the property purchased.

Feel free to email us or bring this up with your salesperson if we can help clarify the situation.

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