In Texas, school districts grant residential homeowners a flat-dollar-amount homestead exemption of $15,000, but local governments are currently prohibited from doing the same. While they can offer percentage exemptions, the ability to offer flat-dollar-amount homestead exemptions would benefit both homeowners and local taxing entities. At present, more than 800 Texas cities, and more than half of the 254 Texas counties do not grant a general homestead exemption.
SB 279 and SJR 20 by Senator Kirk Watson, which passed the Senate on May 5, would create an option for a flat-dollar-amount homestead exemption for cities, counties, and special districts that had not already granted a percentage exemption. The flat-dollar exemption would take effect unless the local governing body elected not to adopt it.
A flat-dollar exemption spreads the benefits more evenly among homeowners of all income levels by giving every homeowner the same reduction in tax liability. In contrast, a percentage exemption gives the greatest tax break to the highest value homes. According to the Comptroller’s Tax Exemptions & Incidence study, 55 percent of the benefit of a percentage exemption goes to the top one-fifth of households according to income.
For instance, a $50,000 exemption in a city, county, or special district with a tax rate of 50 cents per $100 of property value would reduce the tax bill of each homeowner by $250. A 20 percent exemption is equivalent to a $20,000 exemption for a $100,000 home, but a $200,000 exemption for a $1 million home.
If a homeowner lives in a district that currently grants a percentage exemption and a taxing unit chose to replace that exemption with a flat-dollar-amount that was less than the exemption that homeowner was currently receiving, the homeowner could chose to maintain the current exemption.
A flat-dollar-amount exemption would make it easier for local government to offer exemptions to homeowners by increasing predictability and stability of property tax revenue. The cost of a flat-dollar-amount exemption grows only with an increase in the number of homes. In contrast, the tax revenue lost to a percentage exemption also grows as local home values increase, making it a risky proposition for many cities and counties.
Many cities and counties do not currently grant a general homestead exemption, although many of these do offer exemptions for homeowners age 65 or over and disabled persons.
The largest cities and counties not offering a homestead exemption are:
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Passage of SB 279/SJR 20 or similar legislation, including HB 490/HJR 57 by Representative Eddie Rodriguez, could reduce the property tax bills of a significant number of Texas homeowners.